How much for an Emergency fund?
Over the past 3-5 years “Emergency funds” have gained in popularity, and rightfully so. The general consensus for how much you should put in an emergency fund is between 6-12 months of living expenses. This means 6-12 months of your mortgage/rent payment, 6-12 months of car payments and credit card payments, and 6-12 months of misc. expenses.
The job market is very volatile. One out of every ten workers who wants a job does not have one, that tells you how lucky you are if you do have a steady job in this economy. While you have a job you need to make sure that you are being smart with you money. You should aim to save at least 20% of your money. Most of this money should go in high yielding investments such as the stock market or even real estate. Over time you should get returns in excess of 6-8%, but some of the money does have to be completely put aside “for a rainy day”.
You cannot predict the future so you need to do the best you can to prepare for every situation. It is very common for a 2 income household to be cut down to a 1 income household almost instantly. If you have a family it is even more important to develop an emergency that could last your family the better part of a year without any income.
You should put the money you are devoting to an emergency fund in a high yield savings account. Just make sure that you are able to withdraw money from the account at any time without penalty.