Where Should You Keep Your Emergency Fund?

One thing is for sure. The pandemic was a rude wakeup call for many Americans when it came to their money and finances.

Not just for employees, but for businesses as well.

Millions of American workers filed unemployment as a result of COVID-19, and unfortunately, many businesses had to permanently close down and/or declare bankruptcy.

People experienced and witnessed firsthand how not only is it risky to depend on one source of income for one’s livelihood, but worse, to depend on the government for financial help.

Now more than ever, it’s imperative that people begin saving for an emergency fund.

*I wish to be transparent with my viewers/readers. This post contains affiliate links. If you click on the links and make a purchase I will be paid a small commission.

 

Why You Need an Emergency Fund

An emergency fund is money you set aside to shield yourself from an unexpected financial expense like your car breaking down, the water heater breaking, or to cover part of your rent or mortgage due to a job loss.

Ideally, the minimum you should in an emergency fund is $1000 according to financial advisor Dave Ramsey as part of his 7 financial baby steps.

Unfortunately however, about 40% of Americans don’t even have $400 in the bank.

Financial experts typically say that you should have at least 3-6 months of living expenses saved.

Others have gone as far as saying that you should have at least one years’ worth of your income saved.

For the majority of people, saving 3-6 months of living expenses is quite a challenge; especially if one is a low income earner.

As far as saving a year’s worth of income, that can take years to achieve.

Nevertheless, setting aside at least $1000 for an emergency fund is totally doable and should be a priority for you and your family.

Therefore, start saving today if you don’t have one already. Create a money challenge for yourself to help motivate you to save.

 

Where Should I Keep My Emergency Fund?

I’ve read articles that said you should keep your $1000 in one of the following places:

• A high yield checking account with an online bank
• Roth IRA
• Certificate of Deposit (CD)
• Money Market Account
• Short Term Bond Index Fund

This is all well and good and I am not saying that I disagree with these suggestions…but, let’s be practical. Your average Joe and Jane is:

• Not going to seek out opening another checking or savings with an online bank
• Does not have an IRA
• Does not know anything or understand CD’s, money market accounts, or bond index funds.

Simply put, most people are not financially savvy and are just average, working citizens trying to keep their heads about water.

And that’s OK!

Plus, most American families earn less than $60,000.

So, while articles about where to keep your emergency fund are informative, I personally don’t find them realistic.

When it comes to a financial emergency, you need access to your money QUICKLY.

We are not looking for the “ability” to liquidate assets to get the cash you need like with a Roth IRA, CD, or a bond index fund. Liquidating assets can take up to 2-3 business days or longer.

What we are looking for is getting access to cash in 24 hours or less.

Therefore, here is my personal take on where you should keep your $1000 emergency fund that’s a bit more practical; especially for low income and working class Americans.

 

Working Emergency Fund

Cash in Wallet

Amount: $100 (but not less than $20)

Purpose: To cover gas

My twin sister used to get on me all the time about not carrying cash in my wallet. I finally started to do so and I always try to make sure I have at least $20 in my wallet.

Think of it as your “fall back money” as I like to call it, in case something minor comes up and you need cash right at that very moment.

The cash in your wallet is your first line of defense in the event a minor financial jam arises and you need quick cash.

One should aim to carry $100 or more in their wallet as I mentioned in my blog post and video “How Much Should You Carry in Your Wallet.”

However, I understand that many people don’t like the idea of carrying around a lot of cash.

If this is you, carry whatever makes you feel comfortable, but at the very least, strive to have enough money in your wallet to put some gas in your car.

You never know when you may lose your debit or credit card, your cards decline, or you are at a store that only accepts cash.

 

Checking Account

Amount: $100 (but not less than $25)

Purpose: To cover minor inconveniences

I suggest making sure that you never go below $100 in your checking account. At the very minimum, don’t go below $25.

While most financial institutions have overdraft protection to cover an expense in case you don’t have enough money in your account, you will be hit with overdraft fees, which can be as high as $39 for each overdraft.

OUCH!

On the other hand, if you have a threshold of at least $100 in your checking account, this can help cover you in case you inadvertently mismanage your money, a check didn’t clear in time, or more importantly, a minor inconvenience comes up.

Flat tires happen all the time.

Why use your credit card and then have to pay the money back with interest?

A flat tire is a slight emergency that you can pay for with your bank card. Knowing that you have cash in your checking account will save you a headache.

 

Savings Account 

Amount: $500

Purpose: To cover an emergency mainly when you are out of the house

As mentioned earlier, 40% of Americans don’t have $400 in cash to cover an emergency.

Consequently, this is why I recommend that when you begin saving for an emergency, put away at least $500 in your savings account.

Between the $100 threshold you have in your checking account and the $500 in your savings account, you will have $600 in cash.

This amount can cover most minor financial emergencies like your car breaking down, your car getting towed, or a couple nights stay at a motel in the event of an emergency evacuation.

 

Cash in Home Safe

Amount: $300

Purpose: Access to immediate cash when you are at home in case you can’t get to a bank

I suggest keeping the remainder $300 of your emergency fund in cash at home in a safe. You never know when you will need cash where you simply can’t get to a bank in time.

For example, say a water pipe bursts in the middle of the night and the plumber only accepts cash.

Even worse, say your living situation becomes unsafe and you need to leave ASAP where you don’t want to be tracked by taking money out from a bank or ATM.

Having access to immediate cash so you can immediately leave can be a life saver!

 

Conclusion

Once you build your initial emergency fund of $1000, continue saving until you have at least 3-6 months of living expenses.

Then, continue saving until you save at least 1 years’ worth of living expenses or the equivalent of your yearly income.

Never mind how long it will take you to save. Just keep setting money aside, make it a habit, and make it a priority!

Therefore, if you haven’t started saving for an emergency fund, start today. Even if it’s with just $1.

You gotta start somewhere, right?

 

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Thanks!

-Tanisa