One of the most important aspects of managing finances is to determine how much you should maintain in your savings account. While making investments to beat inflation is necessary to achieve financial independence in the future, you should also have a steady corpus of funds to rely on in case of any financial emergencies.
Factors to consider while determining how much to save in your account
Consider the following factors to understand how much money you should maintain in your savings account and how to effectively manage your finances:
- Fixed expenses
It is recommended that you create a contingency fund that is at least six times your fixed monthly expenditures. This comprises of your fixed commitments such as insurance premiums, EMIs (credit card dues and loans), education fees of your kids, and other unavoidable expenses. This fund acts as a financial cushion against emergencies such as medical issues, job loss, home repairs, etc., ensuring that you have the required funds to take care of these expenses.
- Inflation
Inflation can diminish the value of money over time, so what is sufficient today may not be sufficient tomorrow. Consider inflation while growing your emergency fund to ensure that it preserves purchasing power and provides true financial stability in the future.
- Income security
If your income is irregular or commission-based, you may face financial uncertainty. In such cases, you need reserves to financially secure yourself during periods of lower earnings. Freelancers, entrepreneurs, and anybody with a fluctuating income should factor this into their emergency fund calculations.
- Dependents
The more people who depend on your income (your children, a non-working spouse, or elderly parents), the greater your financial responsibilities. Having more dependents would usually mean that you have more expenses, which is when you need to focus on creating a larger emergency fund.
- Health considerations
If you or a family member has recurring health problems, you will almost certainly incur increased medical bills. A greater emergency fund can assist in covering these expenditures without impacting your usual budget or savings goals.
- Debt obligations
High levels of debt, particularly with variable interest rates, might result in uncertain payback amounts. An adequate emergency fund can offer a buffer for periods when interest rates rise, or other expenditures make it difficult to meet your debt commitments.
- Insurance protection
Adequate insurance coverage (such as health, life, and property insurance) may greatly minimise out-of-pocket payments in an emergency. The more comprehensive your coverage, the lesser you would need to rely on your emergency fund.
- Investment equilibrium
While saving is vital, it is equally necessary to also focus on investments that have a potential for high returns. While you might be tempted to use a large chunk of your earnings towards such investments, it is advisable to strike a balance between building an emergency fund and having long-term investments.
Finally, it is essential to assess and update your contingency fund in your savings account periodically to reflect any changes in your monthly expenses. For instance, if your living costs increase or you have a certain financial obligation to meet, your contingency fund must be increased to keep up with your rising expenses.
Final thoughts
Choosing the right bank for your savings account is a key choice that has a big influence on your financial health. In this aspect, IDFC FIRST Bank is a formidable choice, providing a slew of advantages that appeal to a variety of financial demands. Notably, the bank offers a high interest rate on savings accounts that can help with growing your corpus. This is supplemented by the ease of monthly interest credits, which help in better financial planning and budgeting.
Furthermore, IDFC FIRST Bank stands out for its Savings Accounts with zero-fee banking. With zero-fee banking*, customers enjoy 28 savings account services, such as IMPS, RTGS, NEFT and ATM transactions, free of cost. Also, there are different types of savings accounts that you can opt for, so make sure to pick one that is suitable to you.
*IDFC FIRST Bank offers Zero Fee Banking on all Savings Accounts, subject to maintenance of required Average Monthly Balance in the account. These services are being offered free in good faith, and in case of abuse, the bank reserves the right to charge fees as per market norms. All rights reserved.
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