Guidelines for an Emergency Fund

Perhaps you had to tap into your emergency fund during the past year or so. Or maybe the uncertainty surrounding the pandemic has you thinking that it is time to start an emergency fund. Real Simple offers “5 Rules for an Emergency Fund That Will See You Through (Almost) Anything.

You might wonder why you even need “rules” for an emergency find but guidelines can help you as you try to save enough to keep you afloat should you need it.

The conventional advice from financial experts is that your emergency fund should cover 3 to 6 months of expenses. For some people the thought of saving enough to cover what they need to spend in half a year is daunting. You can start with trying to save enough to cover one month of expenses and then keep going.  Expenses include: housing, bills, travel expenses for everyday commuting, and food. The article points out that while it may be tempting to raid your emergency find for something fun like a vacation, you really need to leave that money alone because you don’t want to have nothing for unexpected expenses or little left to cover you if you lose your job.

Some people know that they have a difficult time not spending and consider investing their emergency fund. Investing the money would keep it out of reach but you really need to make sure that you can get to your emergency fund. If it is invested, you will not be able to access the money right away should you need it. As the article observes, “You do want to make sure that money isn’t at any risk (as it would be in the stock market, for example). CDs, low-risk investments, Roth IRAs, and the like are all popular picks for emergency fund storage…” A savings account will  also give you quick access to your money but not just any savings account. You can find a high-interest savings account so that your money is working for you as you leave it unused.

©Bring Clarity to Your Finances™. Guidelines for an Emergency Fund is a post from Bring Clarity to Your Finances™

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Claire Emory, MBA, CFA, CFP®

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