Build an Emergency Fund

Dipping into your long-term investments to handle an emergency can play havoc with even the best-laid financial plans. If you don't want to chance jeopardizing your retirement, consider creating an emergency fund in an account set aside for life's uncertainties.

An emergency fund can help protect you and your family against unexpected events such as catastrophic storms, a death in the family, loss of a job or other unforeseen financial burdens.

Since no one knows when an emergency could occur, your emergency funds should be saved in stable, lower-risk accounts where the money is easily accessible without excessive withdrawal penalties. These types of accounts can include CDs with short maturity dates, money market funds¹ and savings accounts.   

And since there's no predicting what expenses you'll need to cover, it's widely recommended that you save three to six months of living expenses. So if your monthly bills add up to $2,000 each month, work toward an emergency stash of $6,000 to $12,000.

Developing an emergency fund takes time, and you have to set realistic goals. Here are some tips to get you started:

• Start with a goal you can live with − perhaps 5% of your paycheck.
  
• Save through an automatic payroll deduction, so you never see the money.
• Think of it as you think of any bill − something you have to pay.
  
• Skip one big expense this year and use that money to launch your emergency fund.
• Put your tax refund or company bonus into the emergency fund.
  
• Place your emergency funds into an account with no ATM card.
  
  

¹An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the money market fund seeks to preserve the value of your investment at $1 per share, it's possible to lose money by investing in the fund.