ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -50% of your monthly income, after-tax deductions, can meet essential living expenses like rent, utilities, and food. EMIs, debt repayments and investments can take up the remaining 20%. Read How to figure out how much to save in an emergency fund to know more.

Detailed explanation-2: -An emergency fund is a cash reserve that’s specifically set aside for unplanned expenses or financial emergencies. Some common examples include car repairs, home repairs, medical bills, or a loss of income.

Detailed explanation-3: -The 50-30-20 rule is a common way to allocate the spending categories in your personal or household budget. The rule targets 50% of your after-tax income toward necessities, 30% toward things you don’t need-but make life a little nicer-and the final 20% toward paying down debt and/or adding to your savings.

Detailed explanation-4: -Liquid assets like money market accounts, high-yield savings accounts, and CDs are among the ways you can invest your emergency fund money so that it can grow and remain accessible.

Detailed explanation-5: -While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months’ worth of expenses.