Assume, a household's monthly income is Rs. 1 Lakh and the regular household expense is Rs. 60,000. How much emergency fund should be kept by the family?
Question
Assume, a household's monthly income is Rs. 1 Lakh and the regular household expense is Rs. 60,000. How much emergency fund should be kept by the family?
Solution
The size of an emergency fund can vary depending on one's personal situation, but a common rule of thumb is to have enough to cover 3-6 months of living expenses.
Here's how you can calculate it:
Step 1: Identify monthly expenses. In this case, the monthly expenses are Rs. 60,000.
Step 2: Multiply monthly expenses by the number of months. If we take the minimum recommended amount (3 months), then it would be Rs. 60,000 * 3 = Rs. 1,80,000. If we take the maximum recommended amount (6 months), then it would be Rs. 60,000 * 6 = Rs. 3,60,000.
So, the family should keep an emergency fund of between Rs. 1,80,000 and Rs. 3,60,000.
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