Its might surprise you to learn that one of the smartest money moves you can make is to leave a portion of your wealth in a savings account. Although your wealth is earning minuscule interest rates (generally less than 1 percent), and technically shrinking due to inflation in a savings account, an emergency fund is a vital protection mechanism everyone should have in place.
Why is an emergency fund so important?
Life is always full of unexpected surprises, and some of them can be very expensive. Getting laid off or suddenly having to pay for massive home repairs, for instance, can create a sudden need for liquid cash to cover your expenses. If all of your wealth is invested, you may have to liquidate your investments at an inopportune moment, or even worse, treat your retirement investments like a 401(K) as a loan. The emergency fund can allow you to seamlessly cover these road bumps without throwing your investment plans off track.
How much do you need in an emergency fund?
I recommend having 6-8 months of living expenses saved up in your emergency fund. Keep in mind that this encompasses living expenses – your emergency fund should not be used to cover luxurious or non-necessary purchases. Even though I recommend 6-8 months of expenses saved, don’t get discouraged if you cannot fully fund it right away; every penny counts during a rainy day.
Want to learn more about an emergency fund?
At LexION Capital, we take a holistic approach to wealth management. Whether it’s planning for retirement or ensuring our clients are prepped to handle road bumps, we help ensure every aspect of our clients’ lives are financially sound. If you’d like to learn more, don’t hesitate to reach out to us today.