Your Quick Guide to Emergency Funds
The following is a transcript of "
Hello and welcome to Money Girl's Quick and Dirty Tips for a Richer Life.
Today's topic: How much of an emergency fund do you need?
A listener named Nick emailed me with this question about building an emergency fund:
I've often heard that, as a rule of thumb, you should have enough money in savings to live for three months. I don't have this now. Does it make sense for me to spend a few months building up my savings account while making minimum payments on debt, so that I have some reserves?Thanks for the question, Nick. So how much of an emergency fund does a person need and should you save up an emergency fund before paying off debt?
Everyone Needs an Emergency FundIf you don't already have one, start saving for one today. Not tomorrow. Today. Unexpected things can happen that may mean having to go without your income for awhile. You'll have peace of mind if you're prepared to weather a period without your usual income. Financial planners typically recommend creating an emergency fund equal to three to six months of living expenses. How much of an emergency fund you need depends on your specific situation. If you work in a thriving field where jobs are plentiful and easy to come by, you may feel comfortable with just three months of living expenses as your emergency fund. But if jobs in your field are few and far between, you might want a bigger emergency fund that you could tap into for, say, a year, if you were ever to find yourself out of a job. To figure out your emergency fund amount, add up your living expenses for a typical month. Then multiply that number by the number of months worth of emergency fund you'd like to have. That's the amount you'll want to save up.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV