This is the unfortunate thinking of so many Americans. And it’s the reason why most Americans live paycheck to paycheck and have very little savings.
“It will never happen to me,” they think.
Well, they’re wrong. Emergencies happen to all of us. And even if somehow they never encountered an emergency, just the fact that they aren’t prepared for an emergency is an emergency.
You need a buffer between you and life.
An emergency fund is of critical importance.
How much should be in it?
Some financial advisors say 3 months of expenses, others say 6 months, and some say a year. The more the better.
I’ve personally kept 3 years worth of expenses set aside for years now. That’s a huge buffer, I know. More than necessary for sure. But it’s what we are comfortable with.
Where should you put your emergency fund?
It needs to be fairly liquid. That just means you need to be able to access the funds easily.
I keep ours in HYSAs (High Yield Savings Accounts). You could also use short-term CDs or something fairly low risk but easy to access.
If you don’t have an emergency fund now with at least 3 months worth of your living expenses in it, I’d encourage you to make this top priority.
Treat it like an emergency.
