How much money should you have in an emergency fund?
An emergency fund consists of a reserve of cash equivalent to 3 to 6 months’ worth of your expenses. If there’s uncertainty in your job, or even the industry you work in, you should consider a six-month reserve. However, if you have a stable job, a 3-month reserve may suffice. You should only use these savings in situations that are beyond your control.
If your car breaks down, and you don’t have any excess cash, then you may have to use part of your emergency savings. When you have to use your emergency savings, remember to build it back as fast as possible. An emergency fund is not meant to be invested. The urge to do it has decreased significantly since there are savings accounts available with exceptionally high yields. These are great options for your emergency savings.
Ultimately, the purpose of an emergency reserve is to be boring, sit there staring at you, and not make much money. However, it creates opportunities that you wouldn’t have if you didn’t have those funds.
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Casey Smith
President, Wiser Wealth Management
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