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Q: How Much Should You Save For Emergencies?

A: With every client that I work with, we like to do a financial profile to see where they are at now and what do we need to do to get them to their goals. One of the questions that comes up is how much money should I keep in an emergency fund.

Many financial professionals suggest that you put away three to six months’ worth of living expenses for emergencies. I try to encourage are clients to keep at least 6 months of income in liquid accounts. If you lose your job, or become disabled and don’t have adequate disability insurance, you’ll need that money to pay your regular monthly expenses, such as mortgage payments, insurance premiums, groceries, and car payments, until you can find another job. Without such an emergency fund, a period of unemployment could put your assets at risk. Similarly, if your car breaks down or your spouse has a medical emergency, you’ll want to have the necessary cash to pay the bills. You don’t want to be faced with an immediate need for cash, only to discover that you don’t have any.

You may have already set up an emergency fund. Did you put the cash in a five-year certificate of deposit (CD) or other long-term investment? In an emergency, you will need to get at those funds immediately. You can certainly pull your money out of the CD early, but you’ll pay a penalty. It’s better to keep some funds more liquid, in a traditional savings account, a money market deposit account, or a six-month CD, for example. That way, the cash will be readily available when you need it.

Finally, keep your emergency fund separate from your everyday accounts. You might even want to use a different bank. Unless you are extremely disciplined, you’ll be tempted to spend those extra funds if you keep them in your checking account. Remember, if you can put off an expense until next week, it is probably not an emergency.

Keeping at least 6 months of income liquid is always a good idea and a goal that you should diligently work towards.

Until next week!

About the Author

John R. Bearss is a retirement specialist. He has been successfully helping clients nearing retirement generate lifetime income streams for 25 years.

Disclaimer: Investing involves risk. Always do your own due diligence and consult a trusted financial professional before making any investing or financial decisions. John Bearss is a retirement specialist.  He is also a registered representative of and offers securities through SICOR Securities, Inc., Member FINRA, MSRB, SIPC, 6500 Poe Avenue, Suite 105, Dayton, OH 45414 | (937) 890.3101. Neither SICOR Securities, Inc., Lifetime Decisions Management nor their representatives provide legal or tax advice. Please consult your CPA or qualified tax advisor before making any decisions. Lifetime Decisions Management, Inc. and SICOR Securities, Inc. are not affiliated.