Personal Financial Management is not complete without an Emergency Fund.
You need to set up and manage Emergency Fund so as to meet any sort of financial emergency that life puts before you.
It can be medical procedure, you may need to repair your car, may require to repair your house, or it can be any other type of financial emergency. You may have suffered from a business set-back or even have lost your job. All of these situations demand that you should have an Emergency Fund to look up to in times of crisis so that you need not have to borrow money from others.
Here, one more thing is very important. Merely setting up an Emergency Fund is not enough. Actually the salient characteristics of an Emergency Fund require it to be liquid, safe, secure, and also profit-giving. Emergency Fund should be accessible quickly in times of need that is you can cash on your Emergency Fund in the times of crisis. It should safe and secure, meaning it should be available to you when you need it. Moreover, you should earn profits so that the Funds in it grow steadily.
So what is the most important thing in relation to an Emergency Fund besides of course having one for you?
That important thing is Where to Keep Emergency Fund?
You have to decide where to Keep Emergency Fund so that it is safe, secure, can be liquidized easily and can earn good rate of return too.
Here we have come up with numerous options which show you where you can keep your Emergency Fund.
Place to Keep Emergency Fund
Stocking cash at home is one of the easiest options for keeping your Emergency Fund. It provides instant liquidity so you can access it when you need the cash in an Emergency. You can have a separate safety deposit vault at your home and keep the Emergency Fund in it. You need to be personally disciplined not to use the cash of the Emergency Fund for your trivial or spontaneous buying needs. As the Emergency Fund accumulates no interest when you keep it at home and moreover it is risky to cash at home, what you can do best is to have a percentage of Emergency Fund as Cash. This percentage can vary from person to person. It can be anywhere from 10% to 50% of your overall Emergency Fund to be on the safer side.
Opening a Saving Account in a bank is another popular method of keeping your Emergency Fund. You can open a separate Saving Account for keeping Emergency Fund. Saving Account in a bank is both safe and accessible. All the more, you get interest on the money you keep in a saving account. So your Emergency Fund is not stagnant and grows steadily with time. To limit the use of saving account for trivial purposes other than for an Emergency, you can choose not to have debit card for your saving account. This way you can keep your money intact and use it only when you need to fund an Emergency. Well, as Saving Account is both safe and accessible you can even choose to keep all of your Emergency Fund in it. However, it you prefer diversification of Emergency Fund then 50% of your Emergency Fund can be ideally kept in a Saving Account for meeting any sort of Emergency.
Certificate of Deposits (CDs)
There is yet another great option for you to keep Emergency Fund and that is Certificate of Deposits. There are lots of advantages when you consider Certificate of Deposits for keeping your Emergency Fund. First of all, Certificate of Deposits is absolutely safe. You can easily have Certificate of Deposits in a bank for different periods. You can even have CDs of 1 year. Secondly, they can be easily liquidized when you need cash in an Emergency. Thirdly, though low you also get to earn interest on your Certificate of Deposits. As with Certificate of Deposits you don’t get a debit card so withdrawing money is not that easy as in a Saving Account. You can keep your money safe and intact to meet any kind of Emergency.
Mutual Fund and Savings Bond
There are certain distinct advantages related to Mutual Fund and Savings Bonds as a medium for keeping Emergency Fund. Both Mutual Funds and Savings Bond offer decent interest rate so that they can easily beat the inflation and so your Emergency Fund never remains stagnant. Then though they can be easily liquidized but converting them into cash instantly is not possible which enables you to safeguard the money only for Emergency requirements. And last but not the least, they are safe and secure medium of investment.
So you see that there are number of ways to keep Emergency Fund. It would always be better to diversify your Emergency Fund so as to lower the risk and increase the safety of Emergency Fund. Accessibility is also an important point while considering the options of keeping Emergency Fund but it should never be the only criteria. With the above options in place, where to keep Emergency Fund should not remain a question for you any longer.