Should You Invest Emergency Funds or Keep Cash?
Find out how much emergency money you need, the best places to put it, and whether investing it is a smart financial move.
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A new Money Girl podcast listener named Brittany says:
My husband and I are working hard to pay off our student loans, so your podcasts have been fun to listen to and help keep me motivated. We have an emergency fund of $40,000 that’s earning 0.75% interest in a savings account. What do you think about investing the money instead, to earn more interest?
In this episode I’ll help you figure out the right amount of emergency money to save, the best places to put it, and whether investing any amount of it makes financial sense.
What Is an Emergency Fund?
No matter if you call it an emergency fund, a safety net fund, or a reserve account, the idea is that we all need extra money set aside to stay safe from the unexpected.
I'm sure you can relate or imagine how you'd feel if your car wouldn't start, you got a huge dental bill, your refrigerator quit working, or you lost your job or business income. If you don’t have a financial cushion to fall back on for a large expense or a sudden cut in income, a crisis might take years or decades to recover from.
Not having enough money on hand to pay for an emergency is how many people get into credit card debt in the first place. If you make card charges that you can’t afford to pay off quickly, interest on the balance grows every month and you could end up owing 2 to 3 times the amount you originally charged.
So, don’t let yourself get backed into a corner, financially speaking.
Having enough money at your fingertips for emergencies should never be thought of as a luxury. Building up a reserve should be one of your top financial priorities.