Start an Emergency Fund
How much should you save in your emergency fund? Most financial experts recommend that you have somewhere between three months and six months of basic living expenses in your emergency fund. The three-month guideline is generally recommended for those who are in salaried positions and have more secure employment.
It does work. That $1,000 emergency fund will be enough to have your back while you hustle to pay off your debt as quick as you can.
Savings Account: Online Bank or Credit Union
It's important to keep your emergency fund and checking account separate. Clark even suggests keeping them at separate financial institutions. The best online savings accounts and credit unions pay more interest than traditional brick-and-mortar banks.
By 40, you should have three times your salary saved. By 50, you should have six times your salary saved. By 60, you should have eight times your salary saved. By 67, you should have 10 times your salary saved.
Emergency Fund Examples
Dave Ramsey: $1,000; then three to six months of expenses
That's not the final savings total Ramsey recommends for a fully funded emergency account, though. After all your debts (except mortgage debt) are fully paid off, he advises building your emergency fund to cover your expenses for a solid three to six months.
Instead of putting your extra cash toward an emergency fund, she suggests that focusing all of it on credit card debt first will save you more in the long run. ... The lower your utilization rate, the better your credit score because it shows you aren't using up all of your credit and not paying it back.
In short, it should take you between 6 and 18 months to build an emergency fund. As a rule of thumb, you should expect to spend twice as many months saving, as your emergency fund will cover. So, for example, you should plan to spend 12 months building a six-month emergency fund.
As for what to do after your emergency fund, Johndrow recommended grouping your subsequent savings goals into short-term, long-term, retirement and fun categories.
...
Most financial professionals do not recommend investing your emergency fund in the stock market because stocks, as the world just learned only too well during the coronavirus outbreak, are volatile. It would be unfortunate to have to sell an investment at a loss to access your emergency fund.
What Your Emergency Fund Is Really For
Yet No Comments