There are several reasons you need to have an emergency fund, and Tom discusses them in this video from Mullooly Asset Management. Many people also wonder how much money they should have in their emergency fund when creating one. This is a good question to ask your investment advisor, financial planner, or whoever else manages your money.
So let’s start with the reasons you need to have an emergency fund. Nobody likes to be caught unprepared when something negative happens in their life. Realistically though, things like car troubles, medical problems, and unemployment happen to many people every year. When you have money saved to be used in case of an emergency, it can make stressful situations seem not so bad. So what’s more important to you right now, taking that vacation to Cancun or having some peace of mind? In as little as six months to a year, you can save enough money for a great emergency fund.
How much money should you have in your emergency fund? A good way to figure this out is by calculating what you spend in a month. Once you have done this, save enough money to cover at least three months of expenses. Some people feel safer saving more, but you definitely don’t want to save less. There are plenty more reasons you need to have an emergency fund as well, so make sure to watch the video!