"Your emergency fund is not an investment, it's insurance with one purpose--to protect you and your family." --Dave Ramsey
You might ask, what is the difference between emergency fund and a savings? The only difference is the purpose.
On one hand, savings is intended for planned expenses like for example, you plan to get married two years from now, or you want spending your vacation in Europe or somewhere else.
On the other hand, emergency fund is intended for unplanned expenses like car repairs, house repairs because of calamities, illness in the family, unplanned trip due to death of loved ones and the worst thing is you lost your job.
Setting up your emergency fund is like setting yourself recession-free. In case of losing your job, six months period is probably enough already for you to find a new one.
How to compute your emergency fund?
Answer: Compute the total of your monthly expenses and multiply it into 3 months or 6 months. And that's your emergency fund.
Not all financial gurus have the same opinion on how many months of living expenses you should save as emergency funds. Others say it should be 3 to 6 months while others say it should be 8 or 12 months. In my personal opinion, the number of months doesn't matter; what matter is you should be ready in any case and life continues for you and to those who depend on you if something bad happens. In short, it's about your readiness to respond.
Where to put it?
You can put it in a separate bank account where you can withdraw it anytime as the emergency situation comes or you can deposit it in any accessible money market account. If it earns interest then so much the better.
Compare in driving your car, emergencies in our financial life are like "blind spots". In life, the more you anticipate things, the more you are prepared. Little emergency fund is better than no fund at all.
One final question, If some emergency case happens to you and your family right now, would you say that you are ready? Remember, it's always better to be safe than sorry.
Setting up your emergency fund is like setting yourself recession-free. In case of losing your job, six months period is probably enough already for you to find a new one.
How to compute your emergency fund?
Answer: Compute the total of your monthly expenses and multiply it into 3 months or 6 months. And that's your emergency fund.
Not all financial gurus have the same opinion on how many months of living expenses you should save as emergency funds. Others say it should be 3 to 6 months while others say it should be 8 or 12 months. In my personal opinion, the number of months doesn't matter; what matter is you should be ready in any case and life continues for you and to those who depend on you if something bad happens. In short, it's about your readiness to respond.
Where to put it?
You can put it in a separate bank account where you can withdraw it anytime as the emergency situation comes or you can deposit it in any accessible money market account. If it earns interest then so much the better.
Compare in driving your car, emergencies in our financial life are like "blind spots". In life, the more you anticipate things, the more you are prepared. Little emergency fund is better than no fund at all.
One final question, If some emergency case happens to you and your family right now, would you say that you are ready? Remember, it's always better to be safe than sorry.
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