Saving for a Rainy Day

It’s almost certain that something is going to happen to disrupt your finances from time to time. If you don't have an emergency fund — money that you’ve set aside specifically for unexpected expenses or the loss of income — you might be forced to incur expensive credit card debt, take money from your retirement savings or sell investments at an inopportune time to cover the cost.

Ideally, you want enough emergency savings to cover three to six months’ worth of living expenses. It may take a while to accumulate that much, especially if you’re starting from scratch. Arranging for direct payroll deposits might make it easier to save. If you receive a tax refund or bonus this year, consider putting part or all of it toward your emergency fund to help build it up faster.

Since you can’t predict when you’re going to need the money, you’ll probably want to keep your emergency savings in liquid accounts that you can easily access without paying penalties, charges or termination fees. Just remember that the money is there in case of an emergency, not in case you find a great deal on a vacation. Anytime you take money out of your emergency fund, try to replenish it as soon as possible.