Starting an Emergency Fund: Your First Step to Financial Security

Having an emergency fund is one of the most important aspects of personal finance. It provides a financial buffer that can keep you afloat in case of a job loss, medical emergency, or unexpected expense.

Here are a couple of situations where I have been happy to have an emergency fund:

• Unexpected expense: Sometimes these are big, like a hospital bill. Often, though, they can be small things like your monthly rent. It is nice to have the buffer there.
• Loss of Income: This can be split into loss of income through job loss or through disability.

How Much Should You Save?

Most financial experts recommend saving 3-6 months of living expenses in your emergency fund. However, even starting with $1,000 can make a significant difference. You should come to your own decision on how much to set aside. I generally like the idea of 4 months since that is when disability insurance kicks in when you have an injury.

Where to Keep Your Emergency Fund

Consider keeping your emergency fund in a high-yield savings account. This way, your money stays easily accessible while still earning interest. I personally don't love the idea of all of that money sitting in bonds, so I split it 50/50 between a Vanguard Cash Plus Account and a Vanguard brokerage account. Keep in mind, though, that any money invested in securities is at risk for loss of your principal. Know your own financial situation and plan accordingly.

Conclusion

Remember, building an emergency fund takes time. Start small and stay consistent with your savings goals.