The Economic Times recently conducted a survey to gauge the impact of Covid-19 on jobs.
Here are some findings:
1 in 2 people are facing lay-offs or salary cuts.
1 in 4 people are facing salary cuts of 15% or more.
1 in 5 people will have to borrow money to sustain expenses.
These are extraordinary statistics. The last one is particularly worrisome. And it underlines the need for each and every one of us to build an emergency corpus. Here’s how you can do so.
Start with setting aside three months of expenses and eventually increase it to six months. That should provide a healthy cushion in times of need. Remember a crisis typically arrives unexpectedly, and does so in unimaginable forms. Go for six months; it’s better to be cautious.
Give it a name
Label this money. Call it what it is — an emergency corpus. Knowing that it’s earmarked for emergency situations, helps when you dip into it. It doesn’t feel like you’re eroding your savings.
Don’t keep it in your bank
If money is accessible, it will be spent. So keep this money at an arm’s length. Explore these options:
- Overnight Funds: It will mirror inflation and can be redeemed within 24 hours.
- Fixed Deposit: For those who like even more safety. Although, a premature withdrawal attracts a small penalty.
What doesn’t count
Any money which has been set aside for long term goals, like stocks or equity mutual funds, doesn’t count. Investments which are hard to liquidate like real estate and provident fund, don’t count either. An emergency corpus should be easily available and should not impact long term investments.
Six months of expenses is a large amount. To many it may seem illogical to keep aside this kind of money, and not spend or invest it. But it’s prudent — just look at the statistics again. If you’re still not motivated, read this.
This article contains the opinion of the authors and not financial advice.
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