Ask the expert: building up an emergency fund

We are a young couple earning a good income. We want to plan our savings and structure our funds for any emergency. Could you suggest a strategy?

As a rule of thumb, one should have enough liquidity in a savings bank account or a money market instrument to cover your daily expenses for a minimum of four to six months.

Emergency could be categorised into short-term and long-term. The short-term crisis funds should cover instant potentially major expenses, such as medical issues, household repairs or car maintenance. This money needs to be within reach either deposited in a current or savings account.

The long-term emergency fund covers extensive crises including death, job loss, a natural calamity or accidents such as a fire. Funds to tide over such situations can be stored in the form of an investment and should be able to cover costs for about six to nine months.

However, this may not always be the best option as one cannot relish all the benefits of various financial investment instruments available in the form of Sukuk bonds, fixed deposits, systematic investment plan, insurance, property, savings certificate, Sharia-compliant investment products or stocks trading. To do this appropriately, consider how to use your liquidity and allocate a share of your savings accordingly.

It’s also essential to set a target for your financial goal within a definite time frame. For this you need to monitor your investments regularly and alter the options depending on the performance of the investment funds.