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What is an emergency fund?
Well, it’s exactly what it sounds like, and unfortunately, most of us don’t have one. It is savings stocked away which can be accessed easily should an unexpected emergency occur, like loss of job for instance or major unexpected home repair. Should you encounter an urgent situation, your emergency fund will keep your expenses covered in the interim without forcing you to go into debt. Consider it as your own personal insurance.
How much do you need?
The amount of emergency fund recommended is anywhere from 3 – 6 months of your set expenses depending on who you ask. How do you decide how much you need in an Emergency fund?
Do some calculations to add up your monthly mortgage or rent, insurance, utilities, phone, gas/transportation, and food as the basic amount. Then multiply that by the number of months you have decided on – whatever gives you peace of mind to know you are covered. That will be your EF goal. If you are working on paying down debts at the moment, it is important to start setting a little bit aside each month to start building it up.
Where should you put your Emergency Fund?
These funds need to be somewhere that is easy to access at a moments notice. so don’t tie it up in investments. This money should be easily accessible to you in a matter of days at most – while still offering you some growth potential – so, not under your mattress or in a piggy bank. A High Interest Savings Account is a potential option, speak to your financial advisor to determine what is best for you. EQ Bank offers a great everyday rate in their High Interest Savings account, a great place to stash your EF!
For more blog posts like this, check our Savings and Debt Section of the blog!