Saving for Emergencies

Saving for Emergencies

Setting aside money for emergencies is central to ensuring a firm financial foundation.

What is an emergency fund?

Call it a rainy day fund.  I recommend that you set aside money so you don't have to sell possessions or go into debt when the unexpected happens.

How much is enough?

Three to six months of your monthly expenses is the recommended by most Financial professionals.  They estimate this is how much you would need to carry you through a temporary loss of income and cover any unexpected large expenses that aren't within your monthly budget.

Although your ultimate short term savings goal should be to build up the equivalent of three to six months worth of expenses in a trusty old savings account-- your emergency fund-- you've got to balance that with paying off your existing debts.  I  recommend you build up $1000 in savings to provide a little bit of cushion against racking up more debt if something bad happens and then really get after your remaining debts.

Where should I keep it?

If or when you have an emergency your will need to be able to get to your money quickly and know they won't have lost value since you set it aside, because you never know when an emergency will happen.

The logical choices include savings account, money market funds and, possibly some short-term CDs for some of the money.  Your emergency fund isn't about wealth; it's about protecting yourself and avoiding debt when the unexpected happens.

Read more on saving for emergencies:

How Much Do Americans Save?
25 Ways to Save Money
 Have an Emergency Fund
The How Why and When for Building your Emergency Fund