The Importance of an Emergency Fund

With nearly 80% of Americans living paycheck to paycheck (according to a CareerBuilder survey), I feel it is important to revisit some of the basic financial techniques. One of these would be making sure you have an Emergency Fund. Now, I know it is easy to put this on the back burner when you have a good job and things are going well, but as they say, “it will rain”. You may lose that job, visit the emergency room all too often in a month or suddenly need to replace your water heater. Truth is, bad things happen, and you’ll want to make sure you have some cash on hand to keep the unnecessary stress out of an already touchy situation.

When planning your emergency fund, you’ll need to decide how much you will need to set aside. There really isn’t a set number that I can give you to shoot for – but the rule of thumb is 3-6 months of living expenses. Some people might be fine on the 3 month side if they have been at their job a while and have relatively low expenses. Others will feel more comfortable leaning toward the 6 months side.

Once you have calculated how much you’ll need, the question that often follows is where you should keep the money. With emergency funds you will want to make sure the money is easily accessible (or liquid in finance speak). It is best to stick it in a normal savings account at the bank or a money market fund, that way the money is quick and easy to get to when your emergency happens!

It can often feel overwhelming when you are staring at the large number you'll need to save for this fund. Remember to take it one step at a time. Financial discipline is just making one good decision at at time. If you dial in your budget and start saving consistently - you'll be surprised at how quickly you'll be able to save.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.