how to build an emergency fund
starting early is the key to setting up an emergency fund because it helps you build up a comfortable cushion against unexpected emergencies later in life 6 getting a start on emergency funds is relatively easy here are two simple ways to begin saving for one you probably want to park your emergency fund in a vehicle that can be easily liquidated should a financial need suddenly arise while storing cash in a savings account may be the safest approach there are other relatively secure ways to store a part of your emergency fund that offer greater interest earning potential these include high interest savings accounts money market accounts and no penalty certificates of deposit cds which don t charge savers a fee if they need to pull their money out before the maturity date 7 you ll have the access you need in an emergency but won t be incurring fees and time delays associated with other vehicles such as brokerage accounts you may want to build an emergency fund before venturing into volatile investment vehicles such as stocks the latter offer greater long term growth potential than cash and cash equivalents but their value can suddenly decrease in the event of an economic downturn as the 2020 economic crisis and lockdown made vividly clear should that be the moment when you need to tap them you could lose more value an emergency fund protects your portfolio against that risk 7want more advice for saving money toward your financial goals order a copy of investopedia s what to do with 10 000 magazine helping employees savea number of major employers have introduced programs encouraging emergency savings because of the effects of financial instability on productivity and retirement security here s a sampling of programs from three major companies example of an emergency fundhere s a hypothetical example showing how to assemble an emergency fund let s say a married couple has monthly expenses totaling 5 000 this includes the couple s mortgage payments food bills car payments and other necessary outlays using the three month rule the couple needs to set aside at least 15 000 or 30 000 for six months and 40 000 for eight months to address any unexpected financial burdens 