Encountering emergency funding requirements due to situations like medical emergency, business crisis, household repairs, etc. is inevitable. Hence, it is crucial to make provisions beforehand to deal with such financial stringencies. Individuals should, therefore, focus on creating an emergency fund which will enable them to stay afloat during any unforeseen financial crisis.
They can also consider opting for a personal loan during an emergency if they do not have a contingency fund in place. Now, let’s take a better look at what these funds comprise and what options to choose for emergency fund creation.
Emergency fund creation – Things to consider
While calculating the amount of your emergency corpus, you should consider factors such as current debts and expenses, current income, lifestyle, the total number of dependents, etc. For instance, the emergency amount for an individual living alone with no dependent will be much smaller compared to someone who has a family to look after. Furthermore, if one works in a company which doesn’t provide any health insurance, then he or she needs to set aside a higher amount for medical emergencies.
After deciding on the contingency fund amount, you need to know how to build an emergency fund. Accordingly, you should know of the following crucial aspects.
- Accessibility – Considering that it is a contingency fund, it should be allocated to a plan from where it can be accessed quickly during an unforeseen situation.
- Security – The fund also needs to be deposited or invested in low-risk tools which ensure low to no erosion of capital.
- Liquidity – One should also allocate his/her emergency finance to a funding plan wherein it is quickly convertible to cash in case of an emergency.
Subsequently given below are few options that one can consider when depositing the emergency corpus.
Options for emergency fund creation
- Savings account – One should deposit a sizable chunk of his/her contingency fund in a savings bank account that offers high interest on the same. The funds can also be easily accessed from a savings account.
- Fixed deposit – One can also deposit a small portion of their emergency fund into fixed deposit schemes. In this way, individuals can earn a return on the principal amount at multiplied rates. Also, in the case of an emergency, one can withdraw the amount by paying a penalty fee.
- Mutual funds – It is an investment option which consists of stocks, money market assets, etc. One can consider investing in mutual funds through Systematic Investment Plan or SIP as they carry the lowest market risk due to diversified investments. Nevertheless, the corpus allocated to this investment tool should not be high.
Individuals who do not own a contingency fund yet or need additional financing can consider applying for a digital personal loan for financial needs to meet the necessary expenses. Personal loans are unsecured credits, meaning that borrowers do not have to mortgage an asset to avail the advance.
Furthermore, a personal loan during an emergency can be availed with a minimised processing time, which makes them a suitable funding option during any unforeseen situation. They should also know how a personal loan can help with a liquidity crisis.
One can also apply for digital personal loans by following the steps below –
- Visit the lending institution’s official website.
- Select the online loan application form and fill it in with requisite details.
- Enter the loan amount and tenor period. Subsequently, you need to know how to find the right personal loan tenor that works for you.
- Submit the application form after rechecking the information along with necessary documents.
Financial institutions like Bajaj Finserv also provide pre-approved offers to borrowers for a more streamlined application processing. The offer can be availed on several financial products such as personal loans, credit cards, business loans, etc. You can check your pre-approved offer quickly by entering just your name and contact information.
Besides pre-approved offers, lending institutions also provide a Flexi Loan facility which enables multiple withdrawals from a pre-sanctioned loan amount. Borrowers should thus also know how to get the most out of their Flexi Loan.
Personal loans do not come with any end-use restriction, and, therefore, can be used as an emergency medical loan or be utilised to meet multiple financing needs such as debt consolidation, home renovation, etc. Nevertheless, before applying for a personal loan, one must compare lenders and check eligibility criteria and the list of documents required.