It is more important than ever to think about your financial future. So many things can happen and change in a matter of a day. Will your employer merge with another company? Will your employer file Bankruptcy and your job security compromised? What if the transmission on your car goes out?
Unforeseen circumstances arise on occasion, so it is better to be prepared financially, just in case. Establishing an emergency fund can help alleviate the stress and worries associated with financial emergencies. The last thing you want to do is compromise your goals, such as saving for retirement or saving for that long planned vacation.
BUILD YOUR BACKUP
An emergency fund should typically cover 3 - 6 months worth of living expenses. Think of your reserve as a percentage of your salary. A Two-Income Household should typically save approximately 15% of total combined income. A One-Income Household should save approximately 30% of income.
INVEST IN YOUR RESERVE
It is important to maintain liquidity in your accounts so you have immediate access to the funds. The money should be held in stable accounts. First, consider your banking institution's savings programs. Another option could be a High Yield Money Market account, which invests in short-term, high quality government and corporate debt instruments. Remember, your emergency fund is a short-term investment fund.
It is better to be safe, and have a financial security net for emergencies that arise from time to time.
As always, if you have any questions, please feel free to contact me.
Have a great summer!