Amid recession fears, building emergency fund can help overcome hardships

People across the globe are worried about the recession looming large, with many predicting that countries will enter into recession soon or later

Hyderabad: People across the globe are worried about the recession looming large, with many predicting that countries will enter into recession soon or later. The key to shielding yourself from such unforeseen circumstances is having an emergency fund. Financial experts are suggesting individuals to build an emergency fund immediately ahead of a likely recession.

What is an emergency fund?

As the name suggests, it is the money used to cover expenses during unexpected emergencies. In simple words, this emergency corpus is meant to be used only in times of crisis like unexpected job loss or paying a medical bill.

It is different from the money you save for buying a car or paying a college fee. At the same time, it is not the money that you invest in the share market or other immovable properties that are either volatile or harder to access. Also, the emergency fund shall be quickly and easily accessible.

How much should one save?

The basic criterion is to aim for a minimum savings of at least three to six months of your salary. Different factors like expenditure, EMIs, and family needs, among other components must be taken into consideration before deciding on how much to save.

Consider opening separate savings account for building the emergency corpus. Also, consider interest rates offered by banks to give a boost to the money parked in the savings account in the form of compounding interest.

Initially, it may be a difficult task to contribute money towards emergency funds, especially after spending money on daily expenses and saving for other requirements. But the idea is to start contributing in small amounts every month to build a sufficient corpus in the long run.

Not being prepared for unexpected expenses may force individuals to borrow money from banks and other sources, where they end up paying high-interest rates. At times, one may end up selling valuable possessions like gold, silver, and even a home or plot. Financial advisors and experts are advising people to start building emergency funds straight away amid heightened fears of the downturn.

Recently, the founder of Amazon.com – Jeff Bezos also advised consumers across the world to stay away from big purchases as he is expecting a recession to hit the globe in the near future.