Emergency Fund Details

Posted By: Dr. Frugal in Budget on 08/21/2007 at 08:03:01

How long should your emergency fund cover you· Probably three or four months. You'll have to decide what number is right for you. Depending on the area, it can take three or four months to find a new job if you lose yours and you don't want to be without income AND unable to find ANY job. That's really the worst-case scenario.

There are financial advisers who say you should not do any investing until you have completely built up your emergency fund. That is certainyl sound financial advice, but a bit conservative for some people. It is prudent to urge people tht their emergency fund has priority over investing when it comes to your savings dollars.

You should work hard to get at least one-half of your emergency fund in place before diverting any money to investments and even then, only a portion. Keep saving for your emergency fund until it is where you want it to be. The reason you may want to consider beginning an investment program before your emergency fund is complete is that stock and bond investments offer better potential returns than your bank savings program. If you had at least 1/2 your funds in cash and were continuing to add to the emergency fund, and had an emergency, you could tap your investment accounts if needed later in the emergency.

Never fail to put money in your emergency fund until you reach the level you have decided is appropriate for your family. Emergencies, by definition, are unexpected and you need to have this protection in place for your family.

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