What are Emergency Funds:
Emergency funds are some money set aside by an individual or a family for contingencies. They can also be called backup or reserve funds.
Why are Emergency Funds Needed:
You should always keep some funds for emergencies. When life throws unexpected twists and turns at you, and because it has a wicked sense of humor, you can always use these funds. It gives you the peace of mind. Some examples where emergency funds can be needed are:
Loss of a job
Unexpected illness
Huge home/car repairs
Unplanned leave and travel expenses
How Much Money Do Ideal Funds Have:
Most financial planners suggest you have funds that should be equal to three to six months’ of your living expenses. Some say to even stack up a year’s worth of expenses.
Why Emergency Funds Have Become Necessary in 2020:
The need of emergency funds has largely increased because of COVID-19. During This year, over 23 million Americans were unemployed because of the pandemic. Such large numbers have not been seen since the Great Depression in the 1930s. And worldwide, hundreds of millions of jobs were lost and those who are employed had their salaries reduced. Therefore, the need of emergency funds has become vital.
Where Should You Keep Your Emergency Funds:
High-Yield Savings Accounts - These accounts are better for storing your emergency funds than simple savings accounts because they have a high interest rate. Some banks to make high yield savings accounts are Vio Bank, PNC Bank, Bank of America, Popular Direct, CIBC Bank, etc.
Money-Market Accounts - These can often be confused with high-yield savings accounts, but usually require a larger minimum sum of money to open an account. They often include check writing and debit card privileges. If you are planning to save a large sum of money, then these can be the better option for you.
Certificates of Deposit - More commonly known as CD’s, they are a special type of savings account. You agree to keep a certain sum of money in your account and not make any withdrawal for a certain period of time. This can be three months or even five years. At the end of this time period, you collect your money and the interest earned.
Traditional Checking Accounts - If none of the above options appeal to you, maybe the best option for you is a checking account. You may not earn as much interest, but you get the peace of mind that you can use your money whenever you want.
Gold - A traditional but wildly popular way of storing emergency funds in many countries is to invest in this metal. You can buy and sell it at any time. Even banks and financial institutions sell gold coins and biscuits. If you don’t want to keep your money in accounts, you should consider buying gold. Another benefit of keeping gold is that you will be cautious in using it. You are not just going to sell it for that pretty dress you’ve been craving for a month or that new car with really dope features.
Emergency funds are absolutely important for everyone. And even though it can take a while for you to figure out where, how much, and when to invest them, the outcome is totally worth it. You and your family will be thankful later when you need them.
Written by Rishita Arora