5 Emergency Fund Rules that Everyone Should Know

What Is an Emergency Fund?

What Are the 5 Emergency Fund Rules Everyone Should Know and Follow?

How to Build Your Emergency Fund?

What is the Rule of Thumb for an Emergency Fund?

Why does the Emergency Fund Rule of Thumb Generally Work?

FAQs on Emergency Fund Rules

How to calculate the emergency fund amount using the rule of thumb? up-arrow

To calculate the emergency fund amount using the rule of thumb, find your monthly expenses on essentials. Then, multiply it by six to get the amount you need to save to cover expenses over six months.

Can I keep the emergency fund money in a savings account? up-arrow

You can open a separate savings account to keep your emergency fund money. It offers high liquidity and allows you to use it instantly when you need funds. Also, you can earn interest on this money monthly, helping create wealth.

Should I invest my emergency fund money in stocks and mutual funds? up-arrow

No, it would be prudent not to invest your contingency fund money in high-risk investments. Since the returns from these investments depend on market sentiments, there are chances of losing all your money when the prices of shares fall.

When should you not use your emergency fund money? up-arrow

You should not use your contingency fund money to pay your EMIs or premiums or plan a vacation. Ideally, you should not spend your emergency fund money for any purpose other than the reason for creating it.

Can I keep emergency fund money as cash in my home? up-arrow

Yes, you can keep emergency fund money as cash in your home. This way, you can reach out to it when emergencies arise. However, due to its easy accessibility, you must avoid using it for other needs.