Tip of the Day

Today's Tip of the Day brought to you by Google Gadgets:

"Have an emergency fund. Have at least three months' income (some say six) in a high-yield savings account that can be easily accessed."

Having an emergency fund is one of the most important things you can do to ensure your financial stability. It's not an optional item, it's a MUST HAVE!

People underestimate the importance of having an emergency fund because they don't think they will ever be in the position to need it. They don't think they will ever lose their job, or have some medical emergency that will prevent them from working. Without a job, there is no income, and without income, the bills don't get paid, and the trouble begins.

Today's tip is good, but I believe it could be better. I believe that an emergency fund should contain enough money to support your household for at least 6 months (not 3). This is different than having 6 months' income. If you need $2000 a month to run your household then you should save at least $12,000 ($2000 x 6 months) in your emergency fund. Some people live beyond their means, and only make $1700 a month, when they need $2000 a month to run their household. If they saved only $10,200 ($1700 x 6 months) they would actually be $1800 ($12,000 - 10,200) short. This is why I say you should have saved what your household would need to survive for 6 months (not just your income for 6 months, because those numbers are probably different).

Think of the emergency fund as insurance in case something bad were to happen to you or your spouse. You probably have health insurance, life insurance, or car insurance, so why not have an emergency fund as a job loss/loss of income insurance. It's always better to be safe than sorry, and it will always make you feel better knowing that you'll be okay if you lose part of your income for a short period of time - your emergency fund will cover you until you get back on your feet.