Why You Must Have Emergency Fund & Where To Invest It

It is always better to be prepared for any kind of emergency. Even if you are not one of those people who worry about an emergency happening, it is always good to have a small fund to carry you through in case the need arises.

Most people think that saving money is a difficult task. It's not. If you have a proper budget plan and are committed to your goal, it will be really easy for you to reach the savings milestones. The only thing you should remember is consistency in all financial matters. Here are some tips that can help you manage your finances better in case of an emergency.

What is an emergency fund?

The money that you would put aside for the time of financial distress to maintain financial security for some time is an emergency fund. The recent pandemic taught us how important having an emergency fund is. Including an unexpected illness, loss of a job, or an expense you didn’t foresee. You should have a minimum amount that would cover up to 3-6 months’ worth of expenses. And it should be liquid or easily accessible. In case you are investing in the emergency fund, it must not reduce in value and should retain its value.

How much do you need to save?

Your expenses and the size of your family play an important role in deciding how much money you should be putting aside in case of emergencies. In case you are a single adult and have no one depending on you, it is advisable to save up to 3 months worth of expenses. In case you have people depending on your paychecks or have depts, you should have 6 months’ worth of expenses as suggested by SnoCope.

Where should you invest my emergency fund?

Your topmost priority while investing emergency fund is that it should be easily accessible to you without any delay and without any withdrawal penalty dropping the value of your investment. Although saving accounts is a great and easy option to keep your money. But having it so easily accessible so that you don’t dip into it whenever you need money. Also, you won’t need the money on an immediate basis. So I suggest you invest your money in funds you can gain decent returns. Debt Mutual Funds or Short Term FDs is a good option. Do some research before investing.

How can you save for emergency funds?

Make a target of how much money you want to include in your emergency fund. Set aside a small part of your income in your savings after taking care of your monthly expense. Stick to the budget of your expenses and savings until you have reached your goal. You can even save up on the tax refunds you get. Look for other income sources to reach your goal faster. Remember to keep your funds in separate accounts so that you don’t spend them easily.

To wrap things up!

If you don't have an emergency fund in place, start one today. There is no time like the present to get started with your emergency fund and then invest it for a higher return. In case you are thinking of keeping your money in a savings account, you are still losing money to inflammation. And after saving up for an emergency you will get a sense of financial security. Hence, Investment is a safe option. In case you are still confused about managing your cash flows, I suggest consulting a financial advisor.