You live in a society that encourages spending, and it can be hard to remember the power of having savings. However, cash creates opportunities that spending can never provide. An emergency fund is simply a savings account, and having an adequate amount in it will change your life for the better. When the unexpected happens, an emergency fund protects your other long-term investments.
How much should you have in an emergency fund?
Good
At a minimum, you should have three months of living expenses in your emergency fund. This means if you need $3,000 a month to cover your basic needs such as mortgage or rent, utilities, gas, and food, you need to have $9,000 in your emergency fund.
Better
If there are people who depend on you financially, like children or a spouse, you should have an emergency fund that covers at least six months of living expenses. Additionally, if you work in a profession that experiences a high turnover rate or high injury rate, you will need to double the amount in your emergency fund compared to someone working in a profession with a stable career path where layoffs are rare.
Where should you invest your emergency fund?
Where should you invest your cash reserves? In a safe and easily accessible account. Not in stocks. And not in something that imposes withdrawal penalties or significant tax consequences when taken out. In “Making Safe Investments,” we cover six rules for safe investing. The key is to have your emergency fund in something with low risk.
Getting Motivated to Save
If you need a little motivation to save more, print out the list of the top 10 reasons below and tape it to your refrigerator, or put a copy on your desk at work, or keep it in your car. Read it regularly until you feel the power of cash – until saving becomes better and more powerful than spending.
The Importance of Having an Emergency Fund After Retirement
Once retired, if you are over age 59 and a half, you can withdraw from cooperative accounts, 401(k) accounts, 403(b) accounts, and other types of retirement accounts; any withdrawal is subject to income tax, but not to penalties. Many people believe that since they can withdraw freely, they no longer need an emergency fund. This is not true.
Hopefully, you’ve established a comprehensive retirement budget, but it’s certain that you will miss some expense items, and emergencies will occur. One common unexpected expense we see in retirement is when an emergency occurs for an adult child, where 82% of parents say they would make a significant financial sacrifice for their adult child.
Even in retirement, you will need money that you didn’t include in your formal retirement plan, and you will want to set it aside in cash for emergencies. Building this type of cash reserve account is one of the five steps you will want to take within five years of retirement.
Was this page helpful?
Thank you for your feedback! Let us know why! More
Sources:
IRS. “Early Withdrawals from Retirement Accounts,” Vanguard. “What’s the Right Amount for an Emergency Fund?” FINRA. “Starting an Emergency Fund,” Tax Policy Center. “Let Me Tell You About the Very Rich. They Are Different from You and Me,” Discover. “4 Steps to Start an Emergency Fund from Scratch,” Mayo Clinic. “Stress Symptoms: How They Affect Your Body and Behavior,” IRS. “Retirement Topics – Early Distribution Penalties,” Bank of America. “The Financial Journey of Modern Fatherhood: Joy, Complexity, and Sacrifice,” page 21.
Source:
https://www.thebalancemoney.com/how-much-should-i-have-in-my-emergency-fund-2388353
}@media screen and (max-width: 480px) {
.lwrp.link-whisper-related-posts{
}
.lwrp .lwrp-title{
}
.lwrp .lwrp-description{
}
.lwrp .lwrp-list-multi-container{
flex-direction: column;
}
.lwrp .lwrp-list-multi-container ul.lwrp-list{
margin-top: 0px;
margin-bottom: 0px;
padding-top: 0px;
padding-bottom: 0px;
}
.lwrp .lwrp-list-double,
.lwrp .lwrp-list-triple{
width: 100%;
}
.lwrp .lwrp-list-row-container{
justify-content: initial;
flex-direction: column;
}
.lwrp .lwrp-list-row-container .lwrp-list-item{
width: 100%;
}
.lwrp .lwrp-list-item:not(.lwrp-no-posts-message-item){
}
}
.lwrp .lwrp-list-item .lwrp-list-link .lwrp-list-link-title-text,
.lwrp .lwrp-list-item .lwrp-list-no-posts-message{
};
}
Leave a Reply