We receive several letters regarding the importance of an Emergency Fund. If you don’t have one, please do make that a priority this year. Here is an excerpt from E is For Emergency Fund in the “A– Z of Personal Finance.”
Far too many of us are completely unprepared for a financial crises and can be caught off guard. No matter how meticulous you are about your personal finances, emergencies do sneak up on you, disrupting your budget so severely that it can take you several months to recover.
Do you have any money set aside for a "rainy day?”
Remember that life is full of uncertainties so do set aside some money, a cushion, to alleviate the shock of a completely unexpected event that leads to unplanned expenses. Major car or home repairs, a faulty generator or the more serious events such as the sudden loss of a job, or a medical emergency can be very painful when there isn’t enough cash to take care of them. Emergency savings helps you deal with such situations if and when they arise.
How much should you save and where?
In general, a minimum of about 6 months of living expenses should be set aside in a money market account, from where you can easily draw without too much of a restriction; not a current account which you may be tempted to dip into.
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