Whenever I speak to clients about investing, I always talk about having an emergency fund equivalent to 6 months of expenses first.
Why?
Sometimes life can present you with a situation where you need quick access to money and without a financial safety net it can threaten your financial well-being and cause a great deal of stress.
Here are 3 instances where you may need access to an emergency fund:
1️⃣ If you lose your job.
2️⃣ Unexpected events like medical bills, home or car repairs.
3️⃣ Family Emergencies
Where to keep your emergency fund?
You need to keep your emergency fund on deposit in the bank. I know this means that your return on this money will be negligible. However by doing so, you can be certain that the money will be there when you need it and you won’t run the risk of having less than you originally invested.
The alternative would be to have the money invested in assets, i.e. stocks, bonds, etc. The problem with this is that assets can go down in value as well as up. Not only that, but they tend to have an irritating habit of falling in value right before we actually have an emergency and need the money.
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