20s Money Hack: Why an Emergency Fund Beats Every Other Goal

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Why should you read this blog?

It is a tough time these days; if the car tyre gets punctured, the phone breaks, or you lose your job… How do you handle tension if your bank balance is zero? If you have an emergency fund, that’s the answer!

In our 20s, we think, ‘There is still time; we will see later.’ But an emergency can come up anytime in life. Without money, we end up in credit card debt or loans.

In this blog, we will tell you how an emergency fund will save you from financial stress and how it will make you confident in your 20s!

Emergency Fund

What is an Emergency Fund?

Basic Explanation:

“Emergency fund is a safety net in which you save money only for unexpected problems. This money is not for shopping, trips, or parties!”

Examples of emergencies:

  • Accident or hospitalization (extra expenses even after insurance).
  • Job loss or salary cut (expenses lasting for 3-6 months).
  • Urgent repair of the house (like AC or geyser getting damaged).

Why It’s Non-Negotiable:

“An emergency fund saves you from loan apps, credit card debt, or asking for money from friends. This is the first seed of financial freedom!”

Statistic (Data for Credibility):

“According to the 2023 report, 70% of Indian youth do not have emergency funds for 3 months. You can become one of those 30%!”

Why is an emergency fund necessary in your 20s?

Risk Factors in Your 20s:

  • Job Instability: Freshers can lose their jobs suddenly (startups, layoffs).
  • Health Issues: Being young does not mean no health problems (accidents, mental health).
  • Peer Pressure: “I want to go on a Goa trip with my friends, but I don’t have money.” Having funds will reduce FOMO.

Mentality Mistakes:

  • “I will never face an emergency”—this thinking is wrong!
  • “I have my parents; I will ask them for money”—dependency will stop your growth.

How much money should you save? – Step-by-Step Guide

Start Small:

Phase 1: Create a “mini fund” of ₹10,000–₹20,000 (for car repair or phone replacement).

Phase 2: Calculate essential expenses for 3–6 months:

  • Rent + bills + groceries + EMIs = total per month.
  • Total x 3 = Minimum emergency fund.

Example (Real-Life Calculation):

“If your monthly expenditure is ₹25,000, then the fund should be between ₹75,000 (3 months) and ₹1.5 lakh (6 months).”

Pro Tip:

“Automatically transfer 10% of your monthly salary to your savings account. Out of sight, out of mind!”

Where to keep the money? – Safe and Smart Options

Best Place:

  • High-Yield Savings Account (HYSA): Gives 4–7% interest (digital savings accounts of Axis, HDFC, and ICICI).
  • Liquid Mutual Funds: Better returns than FD, easy to withdraw money (like Parag Parikh Liquid Fund).

Avoid these:

  • Fixed Deposits (FD): A penalty is charged if you withdraw money in an emergency.
  • Stock Market: There is a risk—if the market is down in an emergency, you will get less money.

Pro Tip:

  • “Create a separate account—named ‘Emergency Fund‘. Do not mix it with regular savings!”

Breaking Excuses—“I can’t”

  • Excuse 1: “I don’t have any money.”
    Solution: “Save ₹50-₹100 daily. You will have ₹18,000-₹36,000 in a year!”

    Example: “Daily Starbucks coffee ₹150 = ₹4,500/month. Save ₹50 from that!”

  • Excuse 2: “I have a debt; first, clear it.”
    Solution: “Create a mini fund (₹10k), then clear the debt. Otherwise, you will have to take a loan again if an emergency arises!”
  • Excuse 3: “Mummy and Papa always help.”
    Solution: “Reduce their dependency. Having your funds will give you confidence!”

What to do after creating a fund? – Next Step

  • Step 1: Clear high-interest debt (credit cards, personal loans).

  • Step 2: Start retirement planning (SIP, NPS, or PPF).

  • Step 3: Focus on long-term goals (home, car, world trip).

  • Pro Tip:
    “Never touch the emergency fund unless there is a REAL emergency!”

FAQs—Your questions, our answers

Q: In how much time does the emergency fund get created?

  • “Mini fund in 3–6 months, full fund in 1–2 years. Consistency matters!”

Q: Should I put bonus or gift money in the fund?

  • “Yes! If you get extra money, prioritize the fund.”

Q: How to refill the fund after using it?

  • “After that, refill the savings fund first, then move on to the next goals.”

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