#AskUsAnything: Emergency funds, senior’s financial security and cryptocurrency

#AskUsAnything is our series where we answer questions about investing and personal finance. Probably they popped up in your head too, but you didn’t know whom to ask.

I am 34 years old, in a single income family with 2 kids aged 8 and 5. I keep my emergency fund in a joint savings account with my wife. How do I know if that fund is sufficient or not?

Abhaas Rai, Jamshedpur

Before we tell you how much is sufficient, know that keeping your emergency funds in a savings account is not a smart move. Inflation is a reality and you are quietly losing the value by just letting it sit there.

First things first, move it into FDs with a minimum lock-in period, so you can withdraw when needed. Everyone should understand the concept of inflation-proofing – a rate of return that matches the inflation rate.

When planning for your emergency fund, keep in mind factors like your outlook towards long-term job / income security, job market conditions in your industry, your health insurance coverage, the cost of living and inflation rates.

While it can vary based on the above factors, the money in your emergency fund should ideally cover you for at least 6 months. These include your household expenses like groceries, bills, all EMIs, your children’s fees, or any other expense that can’t be avoided.

Beyond that, it’s all about how well prepared you want to be.

———-

My father has just retired from the private sector. Except for some savings, he doesn’t have any investment or a pension. How can I plan for his financial security?

Binu Jacob, Ernakulam

Firstly, you should put your father’s savings into a Senior Citizen Saving Scheme (SCSS). SCSS is the government’s programme to provide retirement benefits to citizens.

It can be availed by any individual above the age of 60 years. SCSS currently offers an interest rate of 7.4%* (*subject to change every quarter by the Union Finance Ministry), which is higher than the savings account of Fixed Deposit.

You can open SCSS at any authorised bank or post office in India. The maximum deposit allowed is ₹15 lakh, with premature withdrawals allowed. This is a non-cumulative deposit with interest paid every quarter. This interest will help with everyday expenses to an extent.

In addition, make sure he has comprehensive health insurance coverage, either through your company’s group health cover, or any retail health plan.

Lastly, you can start investing for him with some of your money through SIPs in mutual funds which can be liquidated whenever needed.

I am 21, and all my friends are into Bitcoins and Ethereum etc. Should I invest in cryptocurrency too?

Parag Thapa, Darjeeling

For starters, here’s where cryptocurrency stands in India today. In her budget of 2022-23, the Union Finance Minister announced that income from transfer of any virtual digital asset shall be taxed at the rate of 30%. Evidently, this got a lot of people excited over the prospect of cryptocurrencies being legalised, just because it is being taxed.

But that’s not the right conclusion, as the government has explicitly stated that the consultation on crypto regulations is still underway. By all indications, we think that cryptocurrencies like Bitcoin or Ethereum will never become legal tender in India.

Secondly, at this age, you should first get the fundamentals of investing and personal finance right. Create your financial goals, like your wedding expenses, retirement savings, a home or car.

Save as much as you can from your income, and start monthly SIPs in index mutual funds. Keep a contingency fund for an unexpected loss of income.

At your age, you should also have about 20% investments in debt instruments for safety, like FDs / bonds.

With crypto, it would be foolish to call it “investing”. It is taking a bet, a pure game of chance.

If you still can’t resist the temptation, put aside some dough you are absolutely willing to forget and play along. This can’t be from your SIPs, FDs or with borrowed money. And just hope you get lucky.