HBD as Emergency Savings Fund and How much you actually need

When we do our financial planning, most of us think about investing in Stocks, Mutual Funds, Real Estate, Cryptos and ETFs. This is actually good to have in your portfolio to create wealth, but one thing which we overlook and which should be mandatory to have is the "Emergency Savings" Fund. Now everyone has different criteria for evaluating how much you actually need as an emergency fund, so let's first find out what exactly is emergency fund bore calculating how much you need.

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Emergency Savings Fund is like a much-needed cushion that you need in your financial journey. For example, recently I have purchased a UPS for my router because when the power cuts I do not want my meetings to stop and it should continue as if nothing happens. Similarly, the Emergency Fund gives you that confidence that even if some emergency comes, you should continue your journey without worrying about anything as if nothing happened.

Now we should know what purpose does emergency fund solves,

1. Your car broke and you need 1000$ (YES)
2. Buying a new model smartphone (NO)
3. You need an urgent medical operation (YES)
4. Buying kitchen appliances (NO)
5. Going on a trip (NO)

In the 5 scenarios, we need an emergency fund for 2 scenarios and for the other 3, it is just needed which we can postpone until we have some spare money to buy instead of taking money from the emergency fund. Emergency Savings Fund is used to take care of necessities and not wants. Similarly, when people lose their job and there is no income, then all their living expenses should be done using emergency funds because it was necessities as well as urgent.

One of the goals of my 2022 is to have some emergency fund, this is because the emergency fund which I had in 2021 was spent on urgent necessities and because I had an emergency fund, it was good for me so that I do not have to pull any money out of my investments. So, I know the importance of an emergency fund and why I do save in emergency fund first than I do investment. There are plenty of instances where people struggle when they require urgent money and thus due to lack of proper financial planning (as they did not have emergency funds), they had to borrow or they had to pull money from their investment.

How much Emergency Savings Fund do you actually need

When you have active stable employment, then the most common advice you will get is to have 3-6 months of your living expense. So let's find out,

Suppose you need $1000 as your living expense every month, then you need around $3000 to $6000 in your emergency fund. Now, this is where you have a stable job, but what if you are ageing and the industry you are in have a high attrition rate then you need 6 months to 12 months of your expense i.e. $6000 to $12000.

Savings of 12000$ seems like too much, but what if we save start with 100$ a month and then raise it whenever we have extra money then getting to $12000 seems to be achievable soon.

HBD in savings as Emergency Fund

I do have an emergency fund in my savings account and will start adding funds to it. But I will also add HBD to savings and get 12% interest as well as keep it as my emergency fund so that any emergency comes in my real life then I do not have to sell Hive and can use HBD in savings. Getting HBD out in 3 days is good too and getting 12% in your savings fund is also better.

So for me this year I will first save for the emergency fund, then the vacation fund and then I have to start my investment journey.

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