It is tough for you to begin with a successful investing plan until you form an excellent base. For many, that means parking funds in offline or online bank savings accounts for an accessible emergency fund to face financial exigency. But how much funds you must keep in your bank account as emergency funds? Read on to understand.

Rule of 50-30-20

The rule of 50/30/20 is one of the common budgeting methods. This rule allows you to allocate your funds to three important categories –

50 per cent towards your needs

30 per cent towards your wants

20 per cent towards your savings

Needs are the expenditures you must pay to maintain your living standards. That involves housing, groceries and utilities and other essentials. Wants refer to the money, you must spend on products and services, which are not necessities, like entertainment, dining out, etc. In the final category, you must direct your surplus funds towards a savings bank account. This is the category that facilitates financial planning. The money you store allows you to take good care of your future requirements. Such savings allow you to enjoy the same lifestyle as your current. This fund portion is used for the following reasons -

  • Exigency funds
  • Investment in stocks, mutual funds, gold, ETFs (exchange-traded funds) or other financial instruments
  • Tax saving instruments like NPS (national pension system), PPF (public provident fund), ELSS (equity-linked savings scheme), etc.
  • Planning for financial goals like retirement, marriage, child’s higher education, etc.
  • Loan prepayment

You must aim to enhance your savings with an increase in your earnings. Also, your savings portion must be planned appropriately. You must ensure to save six times your monthly mandatory expenses in your savings bank account that yields a high bank savings account interest rate as emergency funds. Forming proper funds as backup allows you to face financial uncertainties like unexpected medical exigencies, job loss or accidents without any financial stress. While debts can assist you to mitigate minor financial shortfalls, keeping a substantial amount as a backup in a savings account can help you to witness such scenarios with ease. For this, you must open a new bank account, which you can just use to store your emergency fund.

Ending note

In today’s time, you have distinct expenses to meet. You must ensure to allocate your earned income towards distinct expenses like education costs, bills, expenses of raising your kids, etc. After you meet such expenses, you may be left with some funds, which you must put in your savings bank account to face financial emergency scenarios. So, if you have no backup account, ensure to create a bank account online now to easily face financial exigencies. Also, ensure to increase your cash deposits in emergency funds with an increase in your income. It is also recommended to use a savings account interest calculator. This tool helps you estimate the interest you can earn on your savings account, which can motivate you to save more. It also helps you plan your savings and investment goals effectively.

Latest Comments

Leave a Comment

200 Characters

Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.