Build an Emergency Fund
Dipping into your long-term investments to handle an emergency can wreak havoc on even the best-laid plans. If you don’t want to risk your retirement, consider creating an emergency fund in an account set aside for life’s uncertainties.
Solid planning for emergencies 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 funds and savings accounts.
And since there’s no predicting what expenses you'll need to cover, it’s widely recommended that you save 3-6 months of living expenses.
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 percent of your paycheck
- Save through an automatic payroll deduction, so you never see the money
- Skip one big expense this year and use that money to launch your emergency fund
- Place your emergency funds in an account with no ATM card