Should you have an emergency fund? How much and where should you have it saved? Find out the answer to these questions and more in Arista Advice.
Question of the week is: "Paul, should I have an emergency fund and if so, how much should I save?"
According to a survey by the Consumer Federation Savings Education Council, about one-third of Americans don't have an emergency fund and as a result, they don't have sufficient savings to pay for unexpected expenses.
We recommend highly that all investors and clients should have an emergency fund amount that should cover one, two, but three to six months is a safe measure that we use that people should have set aside in an emergency fund.
If you don't have an emergency fund and are hit by unforeseen events, you'll be forced to rely on credit cards that have high interest rates. I recently saw a credit card from a client that was charging 29% annually on unpaid balances. And individuals will also take out a loan or tap their retirement account.
This could leave them drowning in debt or without enough money to fund and to put the retirement plan in jeopardy and to delay it. Money market funds and a high interest savings accounts are two great places to park your emergency fund. You need to save liquid accounts so that your money is accessible in times of need.
Here's eight reasons why you need an emergency fund:
Number one: job loss.
Number two: major health expense.
Number three: major dental expenses.
Number four: emergency pet care.
Number five: car repairs.
Number six: home repairs.
Number seven: bigger than expected tax bill, and number eight: unanticipated travel.
These expenses are real. As I saw this list of the top 8 expenses that are unexpected, I saw myself remembering two or three of these when I was a young father. When we had a dog or a child or an expense pop up, and I was grateful to have some money set aside to take care of some of those expenses.
If you don't have an emergency savings account, start today with an envelope and put $5, $10, $300, whatever amount. Please put it aside. In this day and age, it just seems that there's more unexpected events occurring, so please be prepared financially, emotionally, physically, in all areas.