5 Considerations for Building Your Emergency Fund

1. What Purpose Does It Serve to Build an Emergency Fund?

  • Using the funds for a big purchase (that you knew was on the horizon, or simply decided you wanted)
  • Tapping your emergency fund for regular maintenance or repairs to assets (like a home) or possessions (like a car)
  • Pulling from your cash reserves that are supposed to be for emergencies to fund an important goal
  • Take a periodic-but-not-monthly expense, like an annual membership due or a disability insurance premium, and divide it by 12. Say you pay $5,000 per year for a professional retainer as an example: put that cost into your budget as a monthly line item for $417, and set the money aside each month until the bill is due for the year. That provides you with the cash you need to pay in total without having to scramble to come up with the full amount all at once.
  • Create slush funds for specific purposes. Not everything is paid on a predictable schedule — and yet if you own a car, you know you’re going to have to replace parts on it eventually. You can set aside a certain dollar amount each month (or periodically as you receive lump-sum payments through things like bonuses, business distributions, or commissions) into a “car slush fund” that you can pull from anytime you need to spend money on your vehicle.
  • Paying for unexpected medical bills in the case of an accident
  • Covering a gap of income due to a job loss or business disruption
  • Managing a major repair on your property (for example, you might be able to save for regular maintenance — but if the fridge goes on the fritz on the same day your basement floods, that’s a reasonable case for pulling from emergency reserves to get everything back up and running ASAP)

2. How Big Does My Emergency Fund Need to Be?

3. Where Should I Keep a Cash Reserve for Emergencies?

4. Are There Alternative Places to Keep My Cash?

5. Should I Have Cash Handy for More Than Just Emergencies?

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Eric Roberge

Eric Roberge

#FinancialPlanner helping 30 & 40-somethings build #wealth & think differently about #money • Top #FinancialAdvisor in #Boston • www.BeyondYourHammock.com