Building an emergency fund is one of the most important components to a healthy financial plan.
An emergency fund is an account (usually a checking or savings account) that you contribute to for the sole purpose of having it if you are ever in desperate need.
How Much Should I save?
You should aim to save up 60-90 days worth of living expenses in your emergency fund. If you are a subscriber and have gone through my Budgeting Made Easy checklist, then you already know what you expect your living expenses to be.
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Someone who has living expenses of $2,000 a month should aim to have an emergency fund with anywhere between $4,000 and $6,000 in it.
When Can I Use It?
Sometimes in life the unexpected happens. While everyone likes to think bad things won’t happen to them, the fact is that things like being laid off or encountering an expensive health complication happen every day.
Having an emergency fund is giving yourself the gift of financial security. This fund will allow you to search of a new job or pay some hefty bills without digging yourself into a hole of credit card debt.
Where Should I Put It?
When it comes to choosing where to have your emergency fund I have two recommendations for you to chose from.
Checking Account Rotation Strategy
Rotating checking accounts to capture bonus offers is something that takes a bit more effort but can effectively turn your emergency fund into an investment.
I explain this type of emergency fund strategy in more detail in my article “How Checking Account Bonuses Can Turn Your Emergency Fund Into An Investment.”
High Yield Savings Accounts
A high yield savings account is the perfect place to have your emergency fund if you don’t want to actively rotate it from checking account to checking account.
Banks like Ally, Barclays, and Goldman Sachs all offer savings accounts with rates over 1% which means a $5000 emergency fund would earn over $50 year.
If you are ready to start your emergency fund but don’t know the best place to open your account check out this great resource by LendEdu.
Now you’re ready to start building an emergency fund today!
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