Find out how much emergency money you need, the best places to put it, and whether investing it is a smart financial move.
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.
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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