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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.

By
Laura Adams, MBA
6-minute read
Episode #401

Think about your 3-month expenses account like an insurance policy that lays the foundation for your safety. If you haven’t achieved that amount of savings yet, always stick with an FDIC-insured high-yield bank savings account. You just can't afford to put your emergency money at risk when you don't have the minimum saved yet.

See also: Investment TipsHow and Where to Invest the Easy Way

How to Build Your Emergency Fund

If you haven’t started saving for an emergency fund, accumulating 3 months’ worth of living expenses can seem daunting. Depending on your income and financial situation it could take years to achieve.

Don’t worry; just get started by taking small steps every month. Make a goal to accumulate $100, then $500, and $1,000, as quickly as you can. Yes, this might require some sacrifices to reduce spending or earn more money.

Here’s a quick and dirty tip if you’re not a disciplined saver: automate it.

Ask your employer to split your paycheck between your regular checking and your emergency account. If you get a paper check or are self-employed, set up an automatic transfer from your checking into your emergency savings fund.

Putting your savings goals on auto-pilot is a smart way to stay on track and never get tempted to spend the money. It may take a little juggling with your expenses, but eventually you won’t even miss the money.

Once you have a safety net in place, you’ll have an amazing sense of security and peace that no matter what happens in your financial life, you’re prepared to tackle it.

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlersbook is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.