An emergency fund is a crucial component of any financial plan. It provides a cushion to fall back on in case of unexpected expenses or job loss and can help prevent going into debt.
Having an emergency fund of at least 3-6 months of essential expenses saved up is a good goal. Having your emergency fund in multiple places is also ideal in case of unexpected events that may limit access to one account or channel.
Once you've saved enough for your emergency fund, the next question you will probably ask is, what do you do with your emergency fund once you have it? Should you invest it, or is it better to keep it in cash? Here are a few key points you should consider to help you decide what to do with your emergency fund.
Regarding your emergency fund, it's crucial to consider accessibility. Your emergency fund should be easily accessible in case you need it, which is why keeping it in a liquid account, such as a savings or a money market fund, is typically recommended. These accounts allow you to withdraw your money quickly and without penalty, which can be important if you need to unexpectedly tap into your emergency fund.
That being said, it's also important to consider the potential growth of your emergency fund. Keeping your emergency fund in a high-yield savings account is a great option, as it allows your money to earn interest while remaining easily accessible.
High Yield Savings
For example, high-yield savings accounts like Maya, GCash, Climb, or any high-interest rural bank are great options. These types of accounts typically offer interest rates that are higher than the national average, which means your money has the potential to grow faster.
Another option is placing your emergency fund in low-risk investments such as bonds, which can provide a steady and stable return without exposing your money to the high volatility of stocks.
A Balance Between Accessibility and Growth
Ultimately, the key is to find a balance between accessibility and growth potential when it comes to your emergency fund. By keeping some of your money in cash and some in low-risk investments, you can ensure that your money is there for you when you need it while also allowing it the potential to grow over time.
Overall, an emergency fund is a vital part of your financial plan and a key to financial security. By carefully considering the balance between accessibility and growth, you can ensure that your money is there for you when you need it most while also helping it grow over time.