Saving for an emergency fund is one of the most important savings goals. It’s the best way to protect yourself financially in case you have a medical emergency, car troubles, or lose your job.
So how much do you really need for an emergency fund?
It’s a good idea to keep three to six months’ worth of essential living expenses in an account that is safe and easily accessible.
Essential living expenses can vary depending on your situation, but typically include monthly housing costs, loan payments, food, childcare, insurance, and transportation costs. This doesn’t mean expenses you can live without like going to the movies, eating out, or fancy shoes.
You may need even more in your emergency fund if you are self-employed, are a single income household, might be changing jobs within the next year, or are likely to experience significant changes in your income or expenses.
And where should you deposit your emergency fund? In order to have fast access to emergency cash, keep it in something safe, low risk and liquid like: Interest-bearing checking accounts, money market savings accounts, money market funds, or short-term CDs.
Best-case scenario, you’ll never have to touch your emergency fund. But if the day comes when you actually do need it, you’ll have some much-needed peace of mind, so you can devote your energy toward solving the emergency, rather than scrambling to pay your bills.
To learn more about how to take control of your financial future, check out the other videos in our Finance 101 series.