This archive report was first published on 1 January 2020.
Why You Need an Emergency Fund ¶
For many people, unexpected expenses can be a significant financial burden. To avoid going into debt or selling valuable assets, creating an emergency fund is essential. As Rohit Shah, founder and CEO of Getting You Rich, advises, "Stacking away some ready-to-use cash is indispensable to a healthy financial plan as unexpected expenses keep cropping up."
January 1, 2020, marked the beginning of a new year, and for many, it's a time to reassess their financial goals. Building an emergency fund is a crucial step towards achieving financial security.
How Much Should You Save? ¶
Financial experts recommend saving 3-6 months' worth of expenses in an emergency fund. This amount may seem daunting, but it's essential to consider factors like family size, number of earners, and health insurance coverage. For instance, if you have older family members or young children, you may need to save more for potential health-related expenses.
Where to Keep Your Emergency Fund ¶
When it comes to storing your emergency fund, it's essential to choose a high-yield savings account or a money market account. These options offer easy access, high benefits, and no penalties for withdrawal. Alternatively, you can consider a certificate of deposit (CD) or online saving apps like Mshwari or Paypal.
How to Save for Your Emergency Fund ¶
- Pay yourself first: Make saving a priority by setting aside money from your salary as soon as you receive it.
- Set and forget: Automate payments from your checking account to your emergency fund account to avoid tedious transactions.
- Stash windfalls: Direct unexpected bonuses or gifts into your emergency fund without affecting your lifestyle.
- Slash your budget: Review your expenses and cut back on unnecessary costs to channel more money into your emergency fund.
