It’s never too late to start planning for your future.
Whether you are a salaried individual or self-employed, it is pertinent for one to prepare for unforeseen circumstances by setting aside some money as an emergency fund that can be utilized in bad situations.
Although saving up for an emergency fund may seem like a daunting task, you can easily start building one for yourself and your family by following our tried and tested tips.
Let’s take a look at our ultimate guide on how to start and build an emergency fund in Pakistan from zero.
What Is An Emergency Fund?
A lot of people get confused between emergency funds vs savings.
As the name suggests, an emergency fund is the money that is set aside for unexpected expenditures. This may include loss of income, unplanned medical bills, emergency home and automobile repair, sudden death of a family member and other unforeseen living expenses. To put it simply, emergency funds are meant to cover unexpected costs and major financial changes.
On the other hand, personal saving funds are usually meant to cover planned expenses, such as buying a car or a house etc.
Why Is It Important to Create an Emergency Fund?
The importance of creating an emergency fund cannot be stressed enough. It is an integral part of a financial plan that allows you to strengthen your safety net and ensure peace of mind. Having an emergency fund also enables you and your family to tackle any unexpected circumstances without seeking out high-interest loans.
How Much Money Should You Save In Your Emergency Fund?
There is no set amount for this particular type of fund. However, as the rule of the thumb dictates, an emergency fund should ideally cover living expenses of six months. This amount varies with each individual depending on their income, expenses, rent, mortgage, loan payments and lifestyle.
Since saving up enough money to realistically tide you over for six months is not an easy feat by any means, most experts suggest starting small. Though there are several emergency fund calculators available online, you should consider setting small goals to keep yourself motivated. Start with an amount as low as PKR 1,000 and then work your way up to six months’ worth of expenses, or more.
Where Should You Keep Your Emergency Fund?
This is the biggest question most people have. If you’re also wondering where to put your emergency fund, the most apparent answer is a savings account.
It is one of the most common types of bank accounts in Pakistan that allow the account holder to earn a profit on their deposited amount over a certain period of time. For this reason, saving accounts are also referred to as profit-bearing accounts. Most banks calculate profits on a monthly or bi-annual basis while providing online and phone banking services. You can also apply for a debit card and access your funds whenever you need them.
Tips on How to Get Your Emergency Fund Started
Want to learn how to create an emergency fund? Well, here are some effective methods that will help you get started on the right part by building a substantial safety net for a rainy day.
Manage Your Household Budget
This is probably the biggest advice for setting up an emergency fund. You can only start saving up money once you start managing your household budget by tracking your income and expenses. For this purpose, you can either utilize one of the many programmes and apps available online or simply create a manual worksheet by putting pen to paper. Start by writing down your total monthly incomes in one column and note down your recurring expenses such as rent, utility bills, grocery, school fees, medicines, and clothing etc. in another. You must also calculate how much you spend every month on shopping, dining out, sports, movies, and other recreational activities.
This exercise will give you an insight into your spending habits and help you figure out how you can save some money every month.
Set Your Emergency Savings Goal
Accumulating enough funds to cover six or more months’ worth of living expenses may be your ultimate goals, but you need to start small. Plan ahead to save up a realistic amount and once you reach that goal, double the goal and start saving more.
The key here is to stay motivated.
Create a Plan to Start Saving
Saving money every month may not be an easy task for households that depend on a single breadwinner. However, it is extremely important for everyone to have some money in their bank accounts that they can access in case of an emergency. Since no one knows what the future holds for them, it is recommended to start saving as soon as possible.
As mentioned above, you can start by setting small and realistic goals. Even if you can cut down your expenses to save a couple of hundred rupees every month, make sure to do so.
You can also consider starting a second stream of income by investing your money in the real estate stock market, and prize bonds. If interested, make sure to check out our guide on the best opportunities in Pakistan for small-scale investors.
Save Your Money in an Accessible Place
Your emergency fund should always be easily accessible. Most experts suggest opening separate savings account for this purpose, as you can earn some profit on your deposits and then withdraw them at any time. However, if you don’t want to open another bank account, consider opting for saving certificates offered by financial institutions such as National Savings Pakistan.
Make a Plan and Follow It
Whenever you set a financial goal, make sure to create a solid plan and then stick to it. Though it may be hard and require a lot of effort, having some money set aside for difficult times will help you sleep easier at night.
To stick to a strict schedule, consider setting up automatic transfers from your salary or work account at the start of every month. This way, a certain amount will be deducted from your account and deposited into your savings account automatically.
This brings us to the end of our guide on how to start and build an emergency fund. If you have any queries or suggestions on the topic, please feel free to drop us a message at email@example.com.
Moreover, don’t forget to check out our guides on top banks offering home financing solutions in Pakistan, investing in Naya Pakistan Certificates and Roshan Digital Account for Overseas Pakistanis.
Stay connected to Zameen Blog – the leading real estate blog in Pakistan – for more financial advice and tips. In addition, make sure to subscribe to our email newsletter and follow our Facebook page to stay in touch.