Car and home repairs<\/li>\n<\/ul>\nIf you lack emergency savings, start by prioritizing saving $1 as your top financial goal without pausing to pay off uninsured debts.<\/p>\n
Once you achieve that milestone, consider how long it took and what sacrifices (if any) you had to make. If you can save more each month, it’s time to diversify and establish other savings buckets for larger or longer-term goals that do not qualify as emergencies. For example, budget items like vacations, car and home repairs, a new car, or even food or pet care.<\/p>\n
However, don’t halt or decrease your contributions to your emergency fund until you reach your targeted spending range.<\/p>\n
Where Should You Kep Your Emergency Fund?<\/h2>\n Typically, people store their emergency funds in savings. We recommend a high-yield savings account, such as the UFB Direct High Yield Savings account.<\/p>\n
However, a savings account isn’t the sole place to keep emergency cash. In fact, it’s not always wise to keep it all in one savings account once your emergency fund is depleted.<\/p>\n
Personally, I maintain a system of protective layers akin to those in a medieval castle. If this concept resonates with you, consider the following layers for your emergency fund:<\/p>\n
1. Cash Reserves<\/h3>\n You need readily accessible funds that can be withdrawn easily from a regular savings account or a money market account. You never know when immediate access to cash might be necessary. Currently, no questions are asked.<\/p>\n
I maintain up to 2 months’ worth of expenses in an FDIC-insured bank account, ready to be accessed at a moment’s notice. Consider using a reputable, possibly online bank to stash your rainy-day fund out of sight and out of mind. However, ensure you have a checking account with that bank to facilitate transferring funds in and having them available for immediate use.<\/p>\n
2. Treasury Bills or Funds<\/h3>\n I allocate a portion of my funds to treasury bond funds and a TIPS (Treasury Inflation-Protected Securities) fund, regarded as extremely stable and secure investments. As exchange-traded funds (ETFs), they are highly liquid, allowing for immediate sale in my brokerage account.<\/p>\n
Alternatively, you can directly buy and sell bonds using your brokerage account.<\/p>\n
In my practice, I reserve 2-6 months of living expenses in these funds. Occasionally, I temporarily hold extra cash in them while awaiting a long-term investment opportunity, such as a real estate purchase.<\/p>\n
However, these relatively secure investments serve as an additional layer of protection. They do not provide instant access to cash. If an emergency arises on a Thursday, financial markets won’t reopen until Monday morning for you to sell your stocks or bonds.<\/p>\n
Even after the sale, you can’t simply withdraw your cash balance from your brokerage account via an ATM. It must be transferred to your checking account, a process that might take several days.<\/p>\n
Given these constraints, although beneficial, bonds or treasuries should only constitute a part of your broader risk management strategy, not your entire emergency fund.<\/p>\n
3. CD Ladders<\/h3>\n Some individuals construct a ladder of certificates of deposit (CDs) as part of an emergency fund.<\/p>\n
You can build a CD ladder by purchasing CDs that mature at monthly, quarterly, or any other interval you choose.<\/p>\n
This strategy ensures the predetermined availability of funds. In case of an unforeseen withdrawal, you forfeit only the interest on a single CD, not the entire sum.<\/p>\n
However, the CD ladder should form only a portion of your long-term emergency fund to avoid any penalties associated with early withdrawals.<\/p>\n
4. Unused Low-Interest Credit Cards<\/h3>\n My spouse and I use travel rewards credit cards for daily expenses, paying them off in full each month. Nevertheless, we reserve low-APR credit cards as a final resort in emergencies.<\/p>\n
These cards can sustain us temporarily while we sell assets like TIPS shares and transfer funds from our brokerage account to our checking account. They offer an added layer of security with instant availability.<\/p>\n
Credit cards are not ideal for cash withdrawals due to high cash advance fees and limited cash advance limits. Nevertheless, they prove extremely useful for urgent purchases, such as last-minute flights during a family health emergency.<\/p>\n
5. Health Savings Accounts (HSAs)<\/h3>\n If you possess a high-deductible health care plan, it’s advisable to establish and build a health savings account (HSA) to supplement it.<\/p>\n
Your HSA savings can be utilized to cover your deductible, but they’re also applicable for various other health-related expenses, including dental care, eyewear, fertility treatments, contraceptives, mental health services, and any other conceivable health-related costs. Refer to IRS Publication 502 for a complete list of eligible expenses.<\/p>\n
Moreover, your HSA can serve as a secondary retirement account, offering excellent tax advantages.<\/p>\n
6. Roth IRA<\/h3>\n As a final safety net, a Roth IRA can serve as a lifeline during a severe financial crisis.<\/p>\n
The IRS permits tax-free and penalty-free withdrawals of contributions from a Roth IRA at any age. However, once withdrawn, these funds cease to accrue interest, impacting the growth of your retirement savings.<\/p>\n
While initially intended as retirement investments, take advantage of Roth IRA contributions knowing they can be tapped into in dire circumstances.<\/p>\n
Conclusion<\/h2>\n In conclusion, within the realm of emergency preparedness, the difference between financial ruin and success is implicit. Establishing an emergency fund equips you to face unexpected challenges and lessens reliance on borrowed funds, potentially reducing financial vulnerability by a significant margin.<\/p>\n
Begin by clearly assessing your monthly living expenses. Then, set a target for the number of months you wish to have covered in case of emergencies.<\/p>\n
Subsequently, determine the portion of your savings designated for the emergency fund and allocate the rest elsewhere for investment purposes.<\/p>\n
Most importantly, refrain from depleting your emergency fund needlessly. Otherwise, it defeats the purpose of having one in the first place.<\/p>\n","protected":false},"excerpt":{"rendered":"
Unexpected expenses always seem to catch you off guard. From car repair costs to medical expenses, from job loss to sudden van emergencies\u2014when they strike, they can be overwhelming. You have a choice: you can either prepare for them in advance or let them stress you out each time they arise. If you’re ready to …<\/p>\n","protected":false},"author":1,"featured_media":214246,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[17],"tags":[],"yoast_head":"\n
Emergency Savings Fund \u2013 What It Is & How Much to Have - Geeky Craze<\/title>\n \n \n \n \n \n \n \n \n \n \n \n\t \n\t \n\t \n \n \n \n \n \n\t \n\t \n\t \n