Do You Follow Some Specific Rules For An Emergency Fund?
You are going through a hard time and you have no money to deal with the situation. An emergency fund can save you and get you out of this horrible situation. Unfortunately, sometimes you may fail to build and maintain your emergency fund. So you can follow some specific rules for an emergency fund that will keep you on track.
Having a specific goal for an emergency fund
When you have a specific goal, that will motivate you to achieve that. You will work for it consistently. So set a goal to build an emergency fund. Now you have a clear idea about the specific amount that you have to reach. You should set a time. That will help define how much money you need to save each month to build an emergency fund.
Decide based on your financial situation
A general rule of thumb is that three to six months' worth of expenses should be there in your emergency fund. Your financial situation can be different than mine. You have to consider that before making financial decisions.
Maybe you need more money as an emergency fund because someone in your family is suffering from a disease. Maybe you have a strong financial background in your family and you are not the only one who earns money. In that case, your emergency fund amount will not be that high.
Make sure the liquidity of the emergency fund
An emergency fund should be liquid. If you build an emergency fund and make an investment for the long term, you will not get the fund immediately when you need that. It will fail to serve its purpose. That's why you should fix the amount of your emergency fund in the first place. It will not be way more that you don't need. You can invest the extra amount, that should not be included in the emergency fund.
You can keep your emergency fund in a savings account where you can get interest. And you will get the money instantly without having any penalties. Do what you feel comfortable with, but make sure you get your fund instantly in case you need that.
Use emergency funds to deal with emergency situations only
Now you have an emergency fund. You should use that fund only for emergencies. You want to go on a vacation and think of using your emergency fund. That's not an emergency situation. You can save money to go on a vacation. So remind yourself why you have an emergency fund. Don't use that for any other purpose.
Do you have any other rules that you follow to maintain your emergency fund? Please feel free to leave your comments. Thank you for reading this post. That's it for now. I'll be back with another post.
