Emergency Fund: The end of the beginning

• Posted on October 15, 2009
• in Financial Advice
• by Luke

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In this post I’m going to explain what to do after you have built up an emergency fund. If you want some advice on starting an emergency fund check out my first post on Emergency Funds here.

So you have saved some money in your emergency fund and now want to maximise your earning ability.

The first thing to remember is…

Your emergency fund must remain liquid. By liquid I mean easily accessible if a crisis hits. The whole point of an emergency fund is to have cash on hand that allows you to cover a big financial shock like what we discussed in Part 1.

Second…

Remember that your emergency fund is made up of at least 3 months worth of your after tax salary.

The normal recommendations are…

• The equivalent to the first month be kept in a high interest current account
• The second month in fixed deposits
• The third month in company debentures

And another thing…

Don’t get too greedy on the amount of interest you earn. Remember the fund is there to help in an emergency, any Interest you gain helps but is not the main driver for the fund, if you want to invest for growth or even income, don’t use your emergency fund.

There is not much to  this, it is a pretty simple way to start your financial planning. It can be a really simple way to assure your financial future.

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