Do you have an emergency fund?
When starting one, do you know how much to save or where to keep it?
Have you ever had one of those months? Then, as you’re driving to work, giving yourself your best, “You can make it!” pep talk. There is smoke seeping our from under your hood. Bad things happen to the best of us, and they almost always come in waves. The important thing is to have a financial life preserver.
This is an emergency cash fund. Although many people agree that an emergency fund is an important resource, they are not sure how much to save. They also do not know where to keep it. Others wonder how they can find any extra cash to sock away. One survey found that 28% of Americans don’t have any emergency savings at all. ¹When starting an emergency fund, you’ll want to set a target amount. But how much is enough? Unfortunately, there is no “one-size-fits-all” answer. The ideal amount for your emergency fund may depend on your financial situation and lifestyle. For example, if you own your home or provide for many dependents, you may be more likely to face financial emergencies.
If you lose your job or become injured, you might need your emergency fund. Fast Fact: Only 10% of people with a college degree say they have no emergency savings, compared to 42% of those with a high-school education or less. Bankrate.com, June 21, 2016 If saving several months of income seems an unreasonable goal, don’t despair. Start with a more modest target, such as saving $1,000. Build your savings at regular intervals, a bit at a time.
It may help to treat the transaction like a bill you pay each month. Consider setting up an automatic monthly transfer to make self-discipline a matter of course. Consider paying off any credit card debt before you begin saving. Then use that money for something other than an emergency. Try to budget and prepare for bigger expenses you know are coming. Keep your emergency money separate from your checking account so that it’s harder to dip into. Where Do I Put It? Savings accounts offer modest rates of return. Certificates of Deposit provide higher returns than savings accounts.
But you cannot access money until your certificate of deposit matures. This could be several months to several years. CDs are time deposits offered by banks, thrift institutions, and credit unions. They offer a higher return than a traditional bank savings account. But they also may have a higher amount of deposit. If you sell before the CD reaches maturity, you may be subject to penalties. Some individuals turn to money market accounts for their emergency savings. Money market funds are low-risk securities. They are not backed by any government institution so it is possible to lose money. Lower risk investments might be your best choice.
Money market funds seek to preserve the value of your investment at $1.00 a share. But, it is possible to lose money by investing in a money market fund. Money market mutual funds are prospectus. Please consider the charges, risks, expenses, and investment objectives before investing. A prospectus containing this and other information about the investment company.