Whether you are still in college or have just begun your career, your twenties are a defining period in your life, and every decision you take now can play a significant role in shaping your future. 

Ved has always been an enterprising young man. Coming from a humble background, he is disciplined, financially prudent, and focused on his goals. 

While still on the cusp of graduation, this 20-year-old managed to save enough through a diligent recurring deposit (RD) to invest in a health insurance policy for his parents. He understands that health coverage is imperative for any individual – and especially his ageing parents. 

Just like Ved, you too can save a significant amount by making some small yet critical changes to your lifestyle. This will ensure a safety net of financial security and peace of mind for years to come. 

Here’s how to start your own emergency fund:

Set a goal

It doesn’t have to be set in stone, but having a measurable goal makes it easier to stick with your savings plan. The key is to stay consistent and keep building the corpus, rupee by rupee. At the very least, you should aim to put aside enough funds to tide you over for 3-4 months in case of an emergency.

Don’t slack once you reach your goal; up the ante and deploy the funds well. Identify a new goal and start setting aside money for the new challenge. 

Track your finances

After accounting for all your expenses, debts, leisure activities, and other investment needs, you’re unlikely to be able to scrape through for a contingency fund. Only the excess, if any, gets deployed in your emergency fund. Hence, it is important to chart all your sources of income and monthly expenses. 

Comb through your incidentals and try to make small practical cuts here and there. Even a modest 5% reduction in expenditure on a couple of expense heads can make a significant difference to your kitty. Banks and some third-party apps allow you to track expenses and customise alerts.

Invest wisely

Bundling cash in a safe isn’t going to cut it anymore. With the rising cost of living and sundry incidental expenses, it is important that your money makes more money.

The first step is to familiarise yourself with financial products and understand where and how to invest vis-à-vis your goals. To be safe, an emergency fund should be deployed in safe and highly liquid investment vehicles. 

Consider a Systematic Investment Plan (SIP) in debt/liquid mutual funds or monthly credits in a post office/recurring deposit account. These options offer yields that at least beat inflation, are easy to get in and out of, and keep your capital safe.

Speak to your peers, consult a known investment professional, and then do your own due diligence before starting an investment plan.

Pay it forward to your future self

Every day, we pay for various goods and services. Try this: every time you make a payment, round off the amount to the nearest 100 rupees and put it aside safely. Usually, we don’t realise where loose change ends up, so this is a really easy way to get the ball rolling. 

You can adopt this strategy with cash as well as with digital payment methods such as debit/credit cards, UPI, etc. There are apps that automatically deploy the rounded-off funds in liquid investment options.

Capitalise on a windfall

Birthdays, festivals, incentives, annual bonus, etc. are all instances when you receive a chunk of capital in a single shot. While you should enjoy the unexpected inflow of cash, remember to add a part of it to your emergency reserves. Such income is not usually accounted for in your regular income/expense sheet.

Similarly, if you get a payback on a loan, a refund on tax returns, credit card cashback, etc. let it all go directly into your emergency fund. This is money you had already spent; it does not affect your personal profit-and-loss sheet.

Hustle if you can

If you have a technical skill or a hobby that can be monetised, it could be a great way to make some extra dough. Just be sure to redeploy it to your savings. This especially works for the younger lot who may not have a steady source of income, or working professionals who can spare a few hours every week. 

You could also take up an activity on weekends or in your free time; something that you like doing and can sustain for a period of time. Many digital platforms allow a host of freelancing gigs that actually pay well. Even if the income is minimal or sporadic, it still does away with a part of the financial burden. Every little helps.

Become penny-wise

Take the commuter train or bus instead of a cab, reduce the number of times you eat out in a month, use discount coupons and offers for shopping or watching movies. A penny saved is a penny earned. Pass these savings on to your emergency fund. 

Also, look for things around the house that you no longer use. Get rid of them by putting them up for sale on a digital platform. You will be able to tidy up your home and make more space, and earn a few extra bucks in the process.

Irrespective of your age or financial situation, you will always need money to bail you out of a tough situation. There are many ways to build a contingency fund; the key is to start as early as possible so that your financial preparedness can boost your mental and emotional morale.