Emergencies are unpredictable, but the money you set aside to cover unexpected expenses (usually big ones) can help.
Along with paying off debt, an emergency fund should come before other financial goals like saving for a down payment on a home, funding your child’s future college, and even investing for your retirement.
Conventional wisdom suggests keeping your emergency fund in a place that’s safe and readily accessible (like a savings account). But with interest rates so low, why set aside money you hope to never use in an account where it’ll earn little to no interest?
A safe approach would tread the line between reasonable liquidity (knowing your money will be there when you need it) and growth (earning enough interest to at least keep pace with inflation).
The Cost of Financial Safety
The first step to determining how much money you should be saving will require you to determine what your household spends in a typical month. Next, separate the costs of the necessities from the non-essentials. Lastly, take the monthly cost of your necessities and multiply it by at least three. Industry experts recommend saving enough money to cover at least three to six months of living expenses.
Taking the Next Steps
Financial wellness can bring you peace of mind and help you live well today and plan for tomorrow. That’s why it is important to be proactive in regards to topics like these. Finetune your emergency fund plan ahead of time to relieve yourself of the stress, in case that emergency fund is needed down the line.