You might have a lot of financial goals, from buying a home, sending your kids to college, retiring at an early age, to getting married. But one goal that you should have is to have and maintain an emergency fund. Why?
The answer is simple: life is full of ups and downs. You can lose your job, you might get sick, your house or your apartment might get broken into, your car might need a major repair. You might think, well there is insurance.
But insurance does not cover everything. You still need some cash readily available. See Get Into The Habit of Saving for more information.
How much to save in your emergency fund?
How much you need to have in your emergency fund will be different for each person. However, it’s recommended to have cash reserve equal to six months of your living expenses.
Though six months’ living expenses can be a lot to save, but if something were to happen, let’s say for example you lose your job, you will have time to at least look for another job and will be able to cover your expenses during that period. Looking for another job can take up a lot of time, usually 3 months to even a year.
Where to have the emergency fund?
A good place for your money is to put it in an High Yield Savings Accounts. Money in an online savings account is liquid, meaning you can withdraw it when you need to without penalties.
Also, they tend to offer a much higher interest rate than most basic and ordinary accounts out there and it is very convenient because you can easily transfer money from your checking account to your savings account.
How to save for it?
A good way to safe for this fund is to use automatic savings. Have your bank automatically transfer a certain amount — it can be as little as $100—from your checking account to your online savings account every week, every two weeks, or every month.
Avoid the temptation of doing it yourself because, for one, you might completely forget to do it. Second, very few of us has the self-discipline to do that.
Do you agree that having an emergency fund is the number one goal you should have? Why and why not? Share your thoughts below in the comments below.
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