TBF’s Personal Finance Series “Being Broke Ain’t Cute”: How to Create an Emergency Fund by F

Your son has just backed the car into the garage – literally!  Your company is downsizing and giving you an unpaid sabbatical.  You painfully remember why Dad told you to hire out roof repair.  Unfortunately, financial emergencies are a fact of life.  And they’re the reason most financial planners recommend establishing an emergency fund to cover unexpected expenses or loss of income.

An emergency fund is enough savings to cover three to six months of living expenses such as rent, food, car, and utilities.  The money should be kept where it can earn decent interest (not a bank savings account or under the mattress) and where you can access it quickly without loss or penalty (not a CD or IRA).  Money-market funds, mutual funds made up of safe, income-producing assets, meet both these criteria and are the best choice for most savers.  Visit Bankrate.com for a comparison of money-market funds.  Finally, experts suggest you annually re-evaluate your emergency savings needs and adjust accordingly if your income, debts, and expenses change.

Perhaps you want an emergency fund but just don’t have the resources available at this time.  Don’t despair.  You can create it over time.  Here are some tips you can use to build your emergency fund:

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