Did you manage to create an Emergency Fund for yourself but can not use it effectively? If not, then stay with this article until the end to learn about the three tips to manage your Emergency Fund effectively.
A financial emergency can shake your life aggressively and without proper preparation, your wealth and investment can get struck heavily. Your credit score can also get spoiled leaving you high and dry on the ground of achieving your crucial financial goals.
If you have an emergency fund, it will work like a cushion when a financial emergency hits you hard. However, having an emergency fund is not everything but managing it in the right way is equally important. So, here are three tips to manage your emergency fund effectively:
1. Build an Adequate Emergency Fund
When I say an adequate emergency fund, I mean the amount of money should be roughly equal to the amount of money you would need to survive for at least months. While 6 months is the ideal time frame to keep in mind, you should go up to 12 months. You should count all your important expenses like food, rent, EMIs, fees, fuel, utility bills and more.
The best way to manage this fund is by reviewing it regularly and updating it according to your upgrading lifestyle and spending habits.
2. Keep it Invested
Do not just keep your money lying around but invest it in an instrument that can promise you a modest return and easy liquidity. You can consider options like bank fixed deposit, savings account with high-interest benefits, liquid funds and more. Easy liquidity is the most important factor here because that is the whole point of an emergency fund: to be available in an emergency situation without a fuss.
3. Know When to Use
Using your Emergency Fund should be your last resort in any situation. Do not rely on it all the time or at minor inconveniences. You need to understand the meaning of the word emergency and use it only when it happens. You can define a meaning for yourself so that you don’t end up using your emergency fund in unnecessary situations.
In this article, we learnt about the three major tips to manage our emergency fund effectively. We need to define ‘emergency’ and use our funds only when it happens. I hope this article was helpful to you and you will put it to good use. Also, share this article with people who would take benefit from it.