Five Tips for Your Emergency Fund
How to navigate when fear is running high and yields are running low.
Q: I often hear that you should keep three to six months' worth of living expenses in an emergency fund, and you've written that some people should keep even more. But in a low-yielding environment, that's an awful lot of money to have sitting in the bank earning next to nothing. Any advice?
A: You're right--the past few years have brought a negative convergence for emergency-fund investors. A still-shaky economy and uncertain job market have underscored the importance of building a cash cushion to cover your costs in case of job loss or big, scary, unanticipated expenses such as medical bills or home repairs. At the same time, available yields on emergency-fund-appropriate investments have shriveled to next to nothing.
Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.