An Emergency+Fund is money for emergencies and other "just in case" situations - such as a new cure that is expensive and not yet covered by insurance or one that is only obtainable outside the United States. Your particular circumstances dictate the size of fund that is appropriate for you.
If you don't have the money on hand now, consider starting building the fund a week at a time. Add as much as you reasonably can. Putting money into the fund is more important than an extra dinner out this week. Watching the fund grow will give you a sense of accomplishment -- and a feeling of control.
How much money to have in your fund: To help determine the ideal amount of your Emergency+ Fund, consider the following, each of which is discussed in another section of this article:
- Your health status
- The current status of treatments for your health situation
- High-interest rate debt
- Your access to credit
- How comfortable you are with risk
- Your insurance
- Security of your employment status and the current job market
- Your income source
Where to invest money in an Emergency+Fund: Funds should be invested in safe investments that you can access quickly such as a savings account in a bank or a money market deposit account with a high yield and no monthly fee or minimum-balance-requirement.
It is not advisable to use a 401K retirement plan, or any other similar plan, as part of your Emergency+Fund. Obtaining money from a retirement plan can be expensive because of penalties and taxes. If you cannot build an Emergency+Fund because of your contributions to a 401K or other retirement plan, consider reducing your contribution to those plans temporarily to free up the money you need.
An easy method of building an Emergency+Fund: One way to build a fund is to make automatic contributions from your checking account.
- Step 1: To make an automatic transfer: The first step is to decide where to direct the money. Cash you may want to access at a moment's notice should go into a savings or money market deposit account. Money for investments should go into a brokerage or mutual fund account.
- Step 2: Obtain the routing and account numbers for each financial institution you plan on using. Also check your bank's fees and policies for automatic transfers.
- Step 3: Set up a recurring transfer from your bank. Arrange for the transfer to occur shortly after pay day.
A fully funded Emergency+Fund is a goal. Real life may intervene. Doing your best is good enough.