Why You Need Emergency Funds And Cash Reserves

An emergency fund, also called a “rainy day fund” or “cash reserves,” is money that you have access to in case of an unplanned sudden need. 

Emergency Funds Are Your First Line Of Defense Against Financial Ailments

An emergency fund is a resource that enables flexibility. It can spring into action when a need arises, and it can “specialize” to become whatever type of resource you need in the moment. 

Here Are The 3 Main Reasons You Need An Emergency Fund

- Avoiding Unnecessary Debt - Help Manage Investment Or Economic Volatility - Safeguard Against A Job Change

The Downside Of Emergency Funds — Opportunity Cost

Other than a lack of disposable income or self-control, I think the main reason people don’t make maintaining an emergency fund a priority is that it’s not exciting. An emergency fund doesn’t have the same upside that real estate or other investing offers. 

How Much Do You Need To Set Aside In Your Emergency Fund?

Well… It depends! Your emergency fund should be a reflection of your lifestyle’s ability to tolerate and respond to risk.  

Single Income Or Variable Income, Larger Emergency Fund

Let’s say you are a single income family including two spouses and three kids. This is a situation where you might want to maintain a larger emergency fund, like 6 months of expenses (or even more!). 

Dual Income Or Consistent Income, Leaner Emergency Fund

Alternatively, if you and your spouse have no kids and both have full-time, salaried jobs in unrelated industries, you may feel comfortable with a more lean, 3-month emergency fund. 

Choose An Option That Fits Your Family’s Needs

All of the variables above are important to consider, but ultimately you need to choose a savings target that is a good fit for your family. It comes down to preference and comfort. 

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