Having an emergency fund is always a good idea, and more and more people are learning the importance of such fund the hard way. It’s crucial to set aside funds that can help you in case of unemployment, serious illness, or urgent repairs.
What is an emergency fund?
An emergency fund is a pool of liquid cash set aside for unforeseen expenses like a medical expense, or a car or home repair. Having an emergency fund can be the difference between a small bump in your financial life and a complete disaster in your entire life. No one wants to live paycheck to paycheck and not have money in case of something unfortunate happens. Having a strong emergency fund will give you peace of mind and financial freedom.
If you decide to leave your job before finding another, or you want to go back to school, or start your own business, having an emergency fund gives you the freedom to do those things.
Sometimes when you see a big number in your bank account you get a little arrogant and a little more reckless with your spending. Keeping money separate can help you avoid impulsive purchase decisions.
What is an emergency?
You should only use your emergency funds in case of real emergencies; to keep yourself afloat between jobs, for a car or home repair, a medical expense, or a death in the family. You cannot use your emergency fund for things like a vacation, a shopping spree or to upgrade your well-functioning cell phone or laptop. An emergency is not a predictable expense, like eg: buying Christmas presents.
Where should you put your emergency fund?
The best place to keep your emergency fund will be in a fixed deposit at a reputed bank. This way every month you’ll be getting a high interest on your savings and that would result in the growth of your emergency fund.