This post may contain affiliate links. Please read my disclosure for more information.
Having an emergency fund is the best financial move you can do to avoid any money crisis that may come your way like a job lost, medical bills, home repairs, car repair, the list goes on.
Data has shown most people get to the habit of spending more than they earn for the sole purpose to prove a point and keeping up with the Joneses.
Table of Contents
Understand what is an emergency fund
An emergency fund is money you can quickly access for life’s unexpected events.
If you are married with a family then this should be enough motivation for you to aggressively start building one now that your emergency now multiplied.
Another benefit of having one is the ability to treat it as your personal bank before even thinking of swapping your credit cards.. For instance, when I’m short on cash, I borrow from my savings (the lender) and return it with a penalty fee (the interest). I hold myself accountable until I return it at a realistic time frame.
Many financial experts suggest you should have three to six months of living expenses. I see this as a minimum especially if you carry some debts. With today’s hard financial reality, I’ll suggest six to twelve months.
Can I invest my emergency fund?
You should never invest money that you quickly need access to. For example, you don’t want to be in a position to start cashing out your investment for a car repair, and being taxed twice is not at your interest.
First of all, if you own a car you should expect it to break down at some point. Therefore you should’ve already considered setting some money on the side for the car alone. But, if it’s a car wreck, I do understand some repairs can surpass the car value itself.
Anyways, I suggest you keep your emergency fund in a safe, quick accessible account with the least risk, such as a savings or a checking account. You can also look for ROI by putting it in:
- Money Market Account although it allows you to withdraw your money up to six times per month and unlimited if in person.
- Certificate of Deposit (CDs) if taken before maturity you’ll get hit with a penalty.
Make Automatic Contributions
You can set up auto transfers at your bank. Having a portion of your earnings go to your savings account by your employer is also possible. If you have a side hustle, put it in your savings or start a money saving challenge and stay committed.
Certainly, you should start with small amounts and gradually increase your contribution. Since it won’t show on your checking account, you won’t feel the dent. You’ll be amazed to see how quickly it can compound if you don’t carry any debt.
Finally,
It all depends on your risk tolerance. Do not wait for the unexpected to present itself, be on the offensive side. They come with no warnings ahead. Make it a habit to save a portion of your earnings every time you get paid.
**Valuable Resources I Use Daily:
Empower offers a free account to assist you in managing your net worth and investment portfolio. Your asset allocation and portfolio performance are so obvious and easy to grasp that I can't get enough of them. It's an excellent tool for anyone keeping track of their investments.
Robinhood is a platform that does not charge commissions. You can start investing with as little as $1 in stocks, ETFs, and REITs. It's simple to operate and navigate. Sign up now to receive a free stock.
Gio founded TheGrowthFocusedGuy in January 2020 because he was fed up with debt.
His mission is to document his journey to Financial Independence in order to motivate and inspire others to get out of debt and begin building generational wealth.
