You should use the money from the emergency fund only to serve the purpose of your savings. Furthermore, you can use it when all the alternative options cease. However, you should replenish the withdrawn amount on having sufficient money.
What are the Things an Emergency Fund Should Not be Used for?
Emergency funds are a perfect solution when facing any monetary urgency. However, people often turn to it even when they feel the slightest financial pull. This can lead to the early depletion of your savings, resulting in the absence of money during an extreme funds crisis.
So, to avoid such situations, having a sound idea about when you should not use contingency fund money becomes indispensable. Also, they can get an idea about some alternate monetary sources. Here are some things an emergency fund should not be used for. You can keep a note of them to make wise decisions about your savings.
What Are the Conditions for Not Using an Emergency Fund?
Wondering when you should not withdraw funds from your emergency fund? Here are some scenarios when you should prevent yourself from pulling money out of your emergency fund investments:
- For Planned Expenses: You should not use your contingency fund for planned expenses like paying premiums or education. You should also not use this money for shopping, dining, or other planned expenses.
- To Fund Vacations: Many people dream of planning international vacations with their families. However, it would be prudent not to use the money in their emergency fund for this purpose. Otherwise, it will get exhausted and deplete the funds.
- For Wealth Creation: You can put your money in assets that can provide stable returns. However, using contingency fund money, wealth creation should not be your primary goal. So, avoid depositing them in high-risk investments like stocks.
- To Pay Off Credits: Paying off credits can become challenging when you run short of money. However, you should not extract money from your savings account. You can look for alternative monetary sources to repay your loans.
- For Other Purposes: Apart from the reason you have started the emergency fund, you should not use this money for any purposes. Remember that your emergency fund is not a savings account from which you can withdraw money anytime at your convenience.
In case you are in urgent need of money, there are several alternative sources to consider. This will supply you with the required capital while keeping your emergency fund money untouched.
What Are Alternative Solutions to Arrange Funds During Emergencies?
There are several alternative monetary sources that you can consider during emergency fund needs:
- Opt for a Loan: You can opt for personal loans to meet your urgent fund needs. Also, for this, you will not have to collateralise your property. This type of credit has no end-use restrictions, so you can use it for everything.
- Withdraw Money from Investments: Unable to get a personal loan due to low CIBIL score? Several investment schemes allow premature withdrawal of money along with other benefits. You can avail the same to meet your immediate financial needs.
- Increase Income Sources: You can increase the sources of monthly income to earn extra and fulfil your financial goals. For instance, you can take up a hobby and convert it into a flourishing business idea to earn money. This can take some time, but you can benefit immensely from it.
- Create Multiple Emergency Funds: You can create more than one emergency fund to ensure a constant supply of cash during urgent monetary requirements. However, you might have to make additional lifestyle adjustments to build another contingency fund.
- Adhere Strictly to Your Monthly Budget: Adhering strictly to your monthly budget ensures that you do not end up overspending. Also, you can cut down on unnecessary expenses to ensure that you save sufficiently to pay your monthly dues on time.
Knowing what an emergency fund should not be used for safeguards you from using all your savings on unnecessary expenses. Otherwise, you will not be able to use the cash when you are in dire need of funds. So, start taking baby steps today to build a contingency fund as early as possible and stay prepared for all financial adversities.
FAQs About Emergency Fund Utilities
You can track your finances, cut out extra expenses, pause other monetary goals, find additional income sources, strictly adhere to the monthly budget, etc. This way, you can accelerate the process of refilling emergency funds.
Yes, it is sufficient for people with monthly expenses ranging between ₹15,000 to ₹20,000. However, it varies considerably with families due to differences in lifestyles and saving habits. So, you must calculate beforehand and accordingly start to save.
No, no fixed amount is mandatory for the emergency fund. The right contingency fund amount depends on your monthly lifestyle expenses, child education fees, instalments and premiums you will need to pay monthly.
No, contingency fund investments allow you to stay worry-free about your financial situation. Furthermore, it is a last resort for meeting monetary urgencies when all other options are unavailable. So, it becomes imperative for everyone to build an emergency fund.
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