Emergency Fund
Candlefocus EditorAs a general rule of thumb, emergency funds should have a cash reserve of three to six months' worth of expenses. However, due to the financial disruption caused by the coronavirus crisis and the subsequent lockdown, many financial experts have suggested that you should aim to save up to one year's worth of expenses in case the situation becomes more serious. It's always a good idea to have a buffer in place for those emergency situations!
Typically, the best place to store emergency savings is in an account that's easily accessible, meaning you can get your money when you need it without incident. High-yield savings accounts, money market savings accounts, and other online savings account options are all great options to consider. As this money is intended for emergency use only, it is typically best to keep it in a low-risk investment - meaning an investment that's easy to liquidate.
Tax refunds and other large windfalls during the year are also a great way to help you build up your emergency fund. If you receive a large refund, you could take a portion of it automatically put it towards your emergency fund and the rest towards other saving goals you have.
In addition to this, some companies have created programs to encourage their employees to save for an emergency fund. This can look like providing dedicated company contributions, setting up separate interest points just for emergency savings, or encouraging personal regimen or budget monitoring software.
An emergency fund is an important part of any personal financial planning. With an emergency fund in place, you won’t be left with an unexpected expense you can’t afford. It is typically wise to have at least three to six months' worth of expenses in the fund, but in times of economic crisis like now, many financial experts advise you to build up a larger reserve of your income to protect against financial hardships.
You should keep your emergency fund in an easily-accessible, low-risk investment account such as a money market savings account or high-yield savings account. You can also set up a monthly transfer from your paycheck or use tax refunds to help build it up. Some employers are even creating incentives and programs to help employees save for an emergency fund.
Having an emergency fund is a great way to ensure you are prepared for any financial surprises or setbacks that life throws your way. Taking the time to build a strong emergency fund cushion can help you sleep better at night and stay on a sound financial path.