Hope for the best, prepare for the worst

RyanJ Blogger



There’s a mantra often used to describe the things life throws at you. You probably know it. For the purposes of professional etiquette, let’s just say that phrase is this: Stuff happens.


Indeed, stuff happens. And, quite often, that stuff comes with a price tag. Hail wreaks havoc on that new SUV. The epic snowfall does an epic number on the roof. Keeping up with a 9-year-old grandson proves problematic for a 69-year-old ankle. Oh stuff!


While you can’t predict this stuff, you can ease the financial burdens it imposes with an emergency fund.


How much money goes into an emergency fund?

Saving enough money to cover 4-6 months of living expenses is wise. That’s a good cushion for events like a sudden illness or injury resulting in time away from work. Significant (and common) home repairs can add up quickly, too. According to Home Advisor, the average cost of a new roof can easily surpass the $5,000 mark. Workplace layoffs aren’t uncommon these days. Being able to cover living expenses for those weeks or months without a paycheck lets you focus on finding a new job.


Where do you put money for an emergency fund?

You’ll want this money accessible. According to FINRA (Financial Industry Regulatory Authority), the best place for an emergency fund is in a liquid account. Here are a few options to consider:


Savings Account
For a simple solution, set up a regular savings account at a bank or credit union. This provides some return on deposits while allowing for withdrawals without penalty. Operating as not-for-profit institutions, credit unions are often able to provide higher interest rates and lower fees. You can also shop online banks for competitive rates. Nerdwallet.com offers a tool to find the best rates at a national and local level.


Certificates of Deposit
To earn a slightly higher interest rate, consider certificates of deposit (CDs). FINRA suggests establishing a series of CDs of similar value, with one maturing every six months or annually.


U.S. Treasury Bills
Like CDs, U.S. Treasury bills typically pay more than a simple savings account. And, similar to CDs, they can be timed to mature on a regular schedule. T-bills aren’t bank products, but they are backed by the federal government. So you don’t risk losing principal if you hold them until maturity.


When do you create an emergency fund?

An emergency fund should be part of any sound financial plan. If stowing away six months’ worth of expenses seems daunting, start small. Add up your monthly rent of mortgage cost, and then factor in your bills and essential living expenses like groceries and transportation. Aim for that sum by saving a little each paycheck. You might be surprised how quickly it grows. Then when the stuff hits the fan, you’ll find yourself better prepared to deal with it.