Life is full of all kinds of unexpected events. Everything could be going great and then one day your truck has an unexpected maintenance issue. Your spouse might call and say that the water heater decided to burst and you have water all over the basement floor. It’s because of these uncertainties that we need to make sure we are always prepared. Setting up an emergency fund can help to offset a financial strain.
What is an emergency fund?
An emergency fund is a liquid amount of cash that you can easily access if some sort of an emergency pops up. I am not talking about money you might need to take a last minute trip to the Caribbean.
With the amount of job layoffs over the past four years and the continued high unemployment rate, having an emergency fund has never been more important.
Getting your emergency fund started
Getting your emergency fund started can be as simple as a $100. As long as you are able to meet and exceed your breakeven point each month you can continue to contribute small amounts over a long period of time. As you slowly build your emergency fund you are going to want to make sure you monitor your spending and avoid debt.
How big should your emergency fund be?
If you talk to any financial professional you will probably get a different answer from all of them on what the perfect amount is. Some people say your emergency fund needs to be as little as $1,000. Personally I think it’s better to have a few months worth of household expenses. This will help keep peace of mind in the event something does happen.
Where do you put the money?
After you have made the choice to start your emergency fund you need to decide where to put the money. The answer is simple. You need to stash it in a high yielding savings account. A couple of options would be either Capital One 360, which currently has an APY of 0.75%. A second option would be Ally Bank, which has an APY of 0.90%.
A high-yielding savings account isn’t going to make you rich, but it keeps the money easily accessible if you need it in a hurry. It’s also better then just keeping it under your mattress.
Wrapping it up
If you follow my advice and set up an emergency fund then you should feel safe the next time an unexpected financial emergency pops up in your life.
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