⁠How To Rebuild Emergency Fund Without Halting SIPs

Life is unpredictable, and sometimes we're forced to dip into our emergency fund — be it for a medical emergency, job loss, or an unexpected expense.

Once the dust settles, the next challenge is rebuilding the fund, especially without derailing your long-term goals like mutual fund systematic investment plans and other investments.

The good news is that it's possible to continue your investments and build an emergency fund with a bit of discipline and smart planning.

An emergency fund acts as a financial cushion that helps you tackle unforeseen expenses without having to liquidate investments meant for long-term goals. Ideally, this fund should cover three to six months of your fixed monthly expenses, including rent, EMIs, essential items and utility bills.

Stopping SIPs might seem like an easy option when there is a cash crunch, but it’s not advisable unless you are in a severe financial crisis. SIPs work best when you stay invested consistently, allowing rupee cost averaging and the power of compounding to work in your favour.

Skipping SIPs, even for a few months, could affect your long-term goals like buying a house, children's education, or retirement planning.

Here's how to rebuild your emergency fund without compromising your SIPs:

• Rework Your Monthly Budget: Start by tracking your monthly expenses. Categorise them into essentials and non-essentials. Cut back temporarily on discretionary expenses such as dining out, entertainment subscriptions, or luxury shopping. Even saving an extra Rs 2,000 to Rs 5,000 a month can make a big difference over time.

• Create Separate Goal For Emergency Fund: Just like SIPs are tied to long-term goals, treat your emergency fund as a short-term financial goal. You can open a recurring deposit or a separate savings account specifically for this purpose. Automate monthly transfers to this account, just as you do with SIPs.

• Use Bonuses Or Windfalls Wisely: Got a performance bonus, tax refund or a gift? Allocate a significant portion of that, around 50% or more, to your emergency fund. This one-time deposit can help you replenish the fund faster without affecting your monthly SIPs.

• Pick The Right Savings Vehicle: Park your emergency fund in liquid and low-risk instruments. Options include high-interest savings accounts, liquid mutual funds, or ultra-short-term debt funds. These options provide quick access and better returns than letting your money sit idle.

• Freelance Or Take Up Side Hustle: If your primary income barely leaves room for saving, consider freelancing, weekend gigs or monetising a hobby. Use the additional income specifically to rebuild your emergency corpus.

• Set Realistic Milestones: You don’t need to rebuild your entire emergency fund at once. Set monthly targets and review progress every quarter. The key is consistency, not speed.