Last year because of buying the property, I have to use some of my emergency fund to give for down payment. And because of that my emergency fund is reduced to almost nil.
And that's why I have created a short term goal to create 6 months Emergency fund. And I am happy to share that I have achieved 4 months of emergency fund till now. And hopefully by the end of this financial year, I will be able to save upto 6 months.
I am not sure, if I will keep the emergency fund upto 6 months or will increase to 9 or 12 months as of now because 6 is a sweet spot. And anything above that might be a bad idea because you are not using the money to grow.
Now what exactly is emergency fund, emergency fund is the fund which is used in case of emergency. Like in my case mostly I am saving it for any job loss or for medical emergencies. But the emergency can be anything where you need instant fund and you don't have to pull it out from your investments.
It is believed thar emergency fund upto 3 to 6 months is great because till that time you will be little settled. But if it's a medical emegency then you might need a little big amount if money.
I have parked the emergency fund in 3 places, 20% in savings, 40% in Fixed Deposit and another 40% in mutual fund. So the 60% is available with me 24/7 whereas the mutual fund I can get in say 2 to 3 days. In this way I can use the emergency fund at any time.
I would say having the emergency fund is worth it because you might need that at any day and if you don't have that then you might need to borrow which can be a problem for your financial journey.
