Keep three to six months of salary in an emergency fund. Money Tips#2
Posted on Thursday, July 2, 2009 at 12:34 amAdvisers have struggled with this one for years because an investor can spend years trying to save six months’ salary, and then keeping that money liquid for emergencies surrenders big growth potential.
A better rule might be to focus on living expenses rather than gross income. That would allow an emergency fund to cover its intended purpose: paying the bills, not replacing lost paychecks. The necessity of these funds can depend on a variety of factors, including disability insurance protection, the availability of credit and the potential costs a family would face from a job loss, health problems or the breakdown of cars or big-ticket household appliances.
Chances are, the average consumer will never face an emergency that requires him or her to come up with six months’ salary within 24 hours, which is why some advisers suggest that emergency funds can do double duty, being an investor’s most conservative bond investments while being accessible if the worst happens.
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