Emergency funds are essential buffers when unexpected things happen, such as job loss.
How, though, can you get started with it? What do you need to do to protect yourself?
How Big Should Your Emergency Fund Be?
The first thing many people wonder is the right amount for an emergency fund.
Most financial gurus recommend you have 3-6 months of expenses in your account.
If you’re looking for something more tailored to your family’s needs, then there are several factors to consider when determining your emergency fund.
Family Size – If you’re a dual income couple with no kids or other family obligations, then you’ll probably won’t need as a big of en emergency fund as a family of 5.
Family Expenses – Your family’s lifestyle has a big effect on the size of your emergency fund. If you have high monthly expenses, then logically, you’ll need more money to save. If your expenses are due to unnecessary spending, then you may want to discuss ways you can lower it. If it’s due to circumstances (i.e. medical bills), you’ll have less room to work with. It’s still possible though to explore options to lower your bills.
Income Streams – If you have 2 or more income streams coming in, that can decrease the size of your emergency fund. You should still have one though, as unexpected events can happen.
If you’re still stumped than shoot for 3 months worth of expenses. Should you lose your job, your family won’t have to panic as you try to find employment.
If you’re in debt, please have a starter emergency fund on hand before you go ahead and pay down your debt.
Where Should You Save Your Money?
The next decision you two should make is where you need to deposit your money. With an emergency fund you need to focus on 3 things:
Easy access to it in case of emergency – It does you no good to have a high interest rate if you can’t get to it quickly when it’s most needed.
Safe place to store you money – Whatever you choose, make sure it’s either covered by the FDIC (banks) or NCUA (credit unions).
A place where it can grow – If you can earn a decent interest rate for your savings while meeting the two previous criteria, then go for it.
Here are some brief thoughts on some of the top places to open your account with. Look around online to compare savings accounts. You should be able to find something to suit your needs.
Brick and Mortar Banks
Most people are familiar with how banks works. An advantage of going with a bank for your savings is convenience.
Some of the bigger ones, like Wells Fargo and Bank of America, offer many branches across the nation.
I would recommend checking their rates before you open up an account; you may find that a local bank may offer a higher rate.
Since credit unions are nonprofit and member-owned, you can sometimes find a much better deal with them than at your local bank.
Depending on what credit union you choose, though, you may be giving up convenient locations.
We’ve been using Capital One 360 for our savings and we’re extremely happy with the service.
While their interest rates are not the highest among online banks, they are decently competitive and we have easy access to our money.
If you don’t like them but are looking at online banking as an option, here are some popular ones right now:
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