Home    News & Publications    The Role of an Emergency Fund (AKA Rainy Day Fund)

The Role of an Emergency Fund (AKA Rainy Day Fund)

July 24, 2019

How would you pay for:

  • Unexpected car repairs?
  • A new furnace?

If your answer is with your savings, good job! Even though the economy continues to grow and unemployment is low, only 43% of people feel they could “find” $2,000 for an unexpected expense.

While this is better than in 2012 when only 35% of Americans felt they could find $2,000, it is still low.

This information was developed through FINRA’s Education Foundation.

http://www.finra.org/newsroom/2019/financial-prosperity-eludes-many-americans-despite-growing-economy 

We recommend an emergency fund be three – nine months of expenses – depending upon the stability of your job, whether or not you are self-employed, etc. To begin savings for an emergency fund, you could:

  • Save a percent or flat dollar amount from each paycheck.
  • Save your raise until you have enough; then keep putting the money away for long-term investing (e.g. Roth IRA)
  • Save your tax refund
  • Reduce some “fun” expenses and put the savings in an account

Your emergency fund should be liquid – available at a moment’s notice without penalty for withdrawal . Usually this takes the form of a money market or interest-bearing savings account. At the time of this writing, for instance, Vanguard Prime Money Market is yielding over 2%.

IN THE MEDIA

Financial Connections makes its staff available to journalists to share knowledge.

READ MORE

SUBSCRIBE TO NEWSLETTER

Receive the Financial Connections quarterly newsletter