Building up an emergency fund is one of the smartest steps you can take to ensure your financial and overall well-being. Emergency funds are liquid funds that you can tap into when the times get tough. Maybe you need to pay for an expensive automotive repair, or perhaps the fridge dies. If you suddenly have an expensive and unavoidable bill to pay, an emergency fund can come to the rescue. The challenge is, of course, where to store those funds? Remember these core pieces of the puzzle:
- Your funds should be easy to access. In the parlance of finance, they should be liquid — funds you can get today if you must.
- They should also be safe. You don’t want to risk your emergency funds.
- They should prevent you from falling into debt.
With those requirements in mind, it’s easy to eliminate stocks and credit cards as a emergency money source. While stocks can be a very good investment, giving you a lot of return, they also can go down.
Credit cards don’t work because they add debt. The whole idea of an emergency fund is to prevent a spiral into debt.
You want to keep your emergency fund separate from your regular savings and checking accounts, making it easier to track your finances. Once a month or so, you can simply take a peek at your account.