I have been told I should have an emergency fund.

March 20, 2014

Any financial advisor is going to recommend you have "liquid money" set aside that will cover six to twelve months of expenses. By liquid, I mean accesible: it is underneath your mattress, in your pocket, or ideally, in some type of account where you earn interest, such as a money market account. Liquid money is for unexpected events that tap your pocketbook. For example, if you lose your job, you will need money to pay the mortgage and monthly bills until you can replace that lost income. In the case of a car accident, you will need liquid dollars to cover car repairs and possibly some medical expenses. It might make it easier if you odn't focus too much on the number of months - think more about the dollar amount so you know how much you need to set aside so you can sleep at night. Ideally, this money is immediately accessible, of course, but youa lso want to earn as much interest as you can. Money market accounts are more liquid than CDs (Certificates of Deposit) and typically pay more interest than savings accounts. Account services vary, however, so shop around for rates, fees and services.

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