No matter where you live or what you do, having an emergency fund is a smart idea. This way, if some sort of catastrophe hits your area, or there’s a family emergency that requires you to spend an extended period away from work, you won’t be forced to dip into your retirement fund or go into debt to rebuild your life, or fund your time off the job.
Most experts recommend that your emergency fund be equal to six months of your salary, so if you typically take home $2500/month, work toward an emergency fund of $15,000, even if you have to do it $25 or $50 at a time.
You should also keep your emergency fund in a lower-risk account, something that’s really stable and allows you easily access your money without penalties. A regular savings account held in an FDIC-insured bank is an excellent first step, and once it grows large enough, you can move part of it into a money market account or a certificate of deposit (CD) to earn better interest.
Since building an emergency fund takes time and patience, realistic goals are the key. Nationwide Insurance offers some fantastic tips for getting you started:
* Decide on an amount you can live with, perhaps 5% of your paycheck
* Save through automatic payroll deduction, so you won’t have a chance to spend the money
* Think of it as you think of a bill − something you have to pay
* Skip one big expense this year and use that money to launch your emergency fund
* Put your tax refund or company bonus into the emergency fund