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Irrespective of your life stage as a grandparent, parent, or a married or single woman – there is a case for having an emergency fund for every woman.
Keep financial troubles at bay, with an emergency fund!
International Women’s Day is often a time for soul-searching as we reflect upon the joys and challenges of being a woman. While societal and cultural challenges are an uphill battle, financial challenges that women often face can be addressed with a little bit of caution and planning. Here is a guide on how you can build your emergency fund, one bank deposit at a time!
One of my earliest memories is of my grandmother putting away money in a gullak or an earthen pot. These would often be loose change from vegetable shopping or money saved from a relative coming over. In some form or shape, women have always relied on pin money or micro-savings.
Whether you are a working woman with a regular salary, a homemaker, part of a committee or social self-help group, or a businesswoman with uncertain cash flows, the importance of an emergency fund cannot be stated enough.
Having an emergency fund can give you peace of mind, allow you to manage unexpected surprises, and ensure that you are not dependent on anyone to help you. Even if you never need the emergency fund, the same money can be converted to fund your other needs.
Women tend to form the bulk of the unorganized work force and hence emergency funds are a safe haven for any crisis.
In situations that are monetary crises, women are harder hit. Be it demonetization (think how men queued up outside banks to exchange the bulk of the family’s income) or escaping an abusive marriage. Traditionally too, at the time of marriage women are given assets that need time to be converted to cash (eg: jewelry, appliances, expensive clothes).
While urban women can rely on banking services, rural women often have only self help groups to organize their infrequent savings. For women with disabilities or queer women – often social burdens (such as travelling or finding safe housing) can be offset to some extent with an emergency fund.
Most financial planning advice guides us to save six months of salary as an emergency fund. However, this is not always a good idea.
We should think a little more deeply about emergency funds. As women, your emergency stash can help you move out of a bad domestic situation, escape a toxic work environment or even fund a small side project you wanted to set up.
Here is what you could keep in mind.
You should always be saving irrespective of a goal or not. Needs arise, be it having to replace an appliance or book last-minute flights for the family on the event of the death of a closed one. Saving with the mindset of future spending undeprepares us for emergencies. Always put money away. Be it the loose change in your purse, a SIP into a mutual fund or a recurring deposit.
With that in mind, what are the different kinds of emergencies? What do you do in each kind of emergency?
Recognize what could be a financial emergency in your life. Sometimes emergencies are just ‘liquidation issues’.
A liquidation issue is likely to arise for slightly sophisticated women who already have some form of assets such as gold or access to rental income. For younger women, having enough cash in hand can become a challenge. Therefore, striving for a second income till an emergency fund is built or letting go of a short-term indulgence can help.
You could be stuck between receiving payments or running low on funds at month-end when you have to travel to another city to visit a parent at a hospital. Credit cards take care of such things – always have one but make sure you can pay before the due date. These emergencies do not take a lot of money but are just a question of meeting surplus cash requirements till your next salary hits.
For freelancers or women who run services from their home, the discomfort of a liquidity crisis can be much higher. In such cases, one way to build an emergency fund is to think of a fund in proportion, for example if you sell 30 pickle bottles a month, income from 5 should be your monthly savings till you meet your goal of emergency or back-up cash.
The second kind of emergency are the ones that are ‘life crises’. Death. Hospitalization.
Trying to fund them from your emergency savings or funds can deplete them and how!
To meet such requirements, take term life insurance or health insurance. These products are also ’emergency’ funds in the sense that they can come to your rescue. If you don’t have them or aren’t eligible – you need equivalent funds to be planned for hospitalization and any such needs.
The third type of emergency is the little annoyances of life. Bad monsoons put your house in repairs. Flatmate ditches you doubling your rent till the next one moves in.
FDs, liquid funds are best because these events can take up a lot of money and one never sees them coming anyway. These are the kind of events that emergency funds can really help with.
The last type of emergency are systemic issues such as Yes Bank crash, Demonetization etc.
These are economic factors outside your control. To manage these, ensure that you spread your emergency savings across some hard cash, savings account, FDs, liquid funds. Do not put your eggs in one basket.
Remember that returns on emergency funds don’t matter.
Your spouse may make fun of you for blocking so much money for emergency when he could use it for the stock market. However, the objective is not to make a return on your emergency funds but to be able to easily access the money in times of need.
Do not make one FD of 12 lakh as an emergency fund. Make 4 of 3 each so that you can break it because most emergency uses will be proportional. Bank with stable lenders and make sure you have debit card, cheques, net banking, mobile banking everything active in case of a failure.
Remember that the emergency fund of someone who can go back to living with parents is not the same as someone who can’t if the emergency they face is losing a job.
People overfund or underfund emergency stashes because they lack awareness. Even if you are financially dependent, you must have your own separate emergency fund or be aware of the household emergency funds.
Financial pundits ask you to save 6 months of your salary or 9 months of your expenses. This isn’t the best way necessarily. What if your salary itself is low or expenses high?
Instead, think of what would be your expected expense outlay if you were in an emergency situation. If you lost your job that came with housing and rent – your expenses would be far higher in the emergency than they were before.
Women often have a tendency to give away their emergency funds, after all movies are all about someone selling mother’s gold bangles. Please do not give your nest egg to your friends or relatives for emergencies! They are YOURS. You can financially assist in multiple ways but always put your oxygen mask before helping anyone else.
This is a double-edged sword as a woman’s emergency fund may be manipulated by cunning relatives. However, a couple of trustworthy people can know how to access your funds. Example, if you or your spouse are in an accident, your child should know how to access some money till the time you are discharged.
Lastly, an emergency is always what you didn’t see coming. If you see it coming, plan for it separately (be it kids’ education, vacation, downsizing). Call it an “I-am-shocked-by-life” fund and use it only when you are hit by a moment like that.
Remember to save for saving’s sake.
Image source: a still from the film Choked
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