Don't park your emergency fund in the wrong spot

In partnership with

Welcome to 3/4 of The Just-in-case Jar- a series where we help you through the much-needed funds, The Emergency Fund. Welcome to ThriftyOwl.Club, where we explore financial mindsets and hacks, helping you enhance your financial acumen one hoot at a time!

Check out parts 1 & 2 of the Just-in-case Jar series. 

Click here to read- Part 1 & Part 2

Where you park your car matters, doesn't it?

Similarly, where you stash your emergency fund matters too. It should be in such a place that is accessible both in terms of easiness to retrieve, to spend, and your peace of mind. 

Why do you need emergency funds?

Let's face it, unexpected expenses are a reality. From medical emergencies to appliance breakdowns, car repairs to sudden travel needs, having a readily accessible pool of money can prevent financial stress and debt spirals. With a rising cost of living and potential medical emergencies, an emergency fund is even more crucial. It ensures you can handle these situations without jeopardizing your long-term financial goals.

So concerning the emergency funds, how much should you be saving?

There's no magic number, but a good rule of thumb is to have 3-6 months' worth of living expenses in your emergency fund. This can vary depending on your circumstances, like dependents or a volatile job market. Start small and build up gradually. Remember, every rupee saved is a rupee earned towards your financial security!

Types of Savings Accounts:

Now, onto the fun part - choosing the right savings account! Here's a breakdown of the common options:

• Regular Savings Accounts: These offer basic liquidity and a low interest rate. They're good for everyday transactions but not ideal for emergency funds due to minimal returns.

• Salary Accounts: Offered by your employer's bank, these often come with waivers on minimum balance requirements and free debit cards. However, interest rates might not be the most competitive.

• High-Yield Savings Accounts: These accounts provide a higher interest rate than regular savings accounts. However, they might have restrictions on monthly withdrawals or minimum balance requirements.

• Liquid Funds: Technically not a savings account, but these mutual funds offer high liquidity and potentially higher returns than traditional accounts. However, there's inherent market risk, so consider your risk tolerance.

Choosing the Right Account for Your Emergency Fund:

Here's what to consider when picking your emergency fund haven:

• Interest Rate: Aim for an account with a competitive interest rate to maximize your returns. Every bit counts!

• Liquidity: Your emergency fund needs to be readily accessible. Choose an account with minimal withdrawal restrictions or penalties.

• Minimum Balance: Some accounts have minimum balance requirements. Ensure you can comfortably maintain this balance to avoid charges.

• Debit Card: A debit card linked to your emergency fund account can be handy, but prioritize easy access over spending convenience.

A Little Pro-Tip: Consider A Hybrid Approach

Between liquidity and high returns, you can also explore the hybrid options. You can put a portion of your emergency fund in a high-yield savings account for better interest. Keep the remaining amount, say a month's worth of expenses, in a spot that is directly accessible, like a salary account for immediate requirements. 

Financial Mindset Shift: Building a Buffer

Building an emergency fund takes discipline. Remember, it's not about getting rich quickly, but about building peace of mind. Start small, set realistic goals, and track your progress. Every rupee saved brings you closer to financial security.

Bonus: Budgeting Tips to Boost Your Emergency Fund:

• Review your expenses: Identify unnecessary spending and cut back. Every little bit saved adds up!

• Explore additional income streams: Consider a side hustle or monetizing hobbies to boost your emergency fund faster.

• Automate your savings: Set up a standing order to transfer a fixed amount to your emergency fund every month.

Emergency funds help you to handle life's surprises without financial stress. By choosing the right savings account and adopting a mindful approach, you can build a strong and efficient safety net. 

Always keep in mind, that financial security is a journey, not a destination. So, take it one rupee at a time, and celebrate every milestone!

Recommended Reads:

• Unchain Yourself for Financial Independence

• Millennial Money: Busting the Debt vs. Investment Myth

• Ditch the confusion, navigate the jungle, and build wealth