Not Having An Emergency Fund
BOSTON (CBS) - We'll cover more dumb money moves this week!
Earlier this summer the headline in the Washington Post read "Nearly 30 percent of Americans are one emergency away from financial ruin". And they are right.
But here in Massachusetts nearly 50% of residents have an emergency fund that will last them 3 months according to a study done by FINRA's Investor Education Foundation.
We currently rank number 5 in the nation, so if this was a contest we rock. This is definitely good news, but half of our listeners don't have an emergency fund. That's not a good thing.
Everyone needs an emergency fund. This is money set aside to be used for emergencies. When your income stops coming in or drops, you will need this money to keep paying your mortgage and buy groceries.
This is money to be used when you lose your job, the winds of a hurricane blows the roof off your house or in the case of the Market Basket workers last year who choose to join the picket lines. You need to plan for the unexpected and having an emergency fund allows you to do just that.
Experts agree that everyone needs an emergency fund, but they often disagree on how much you need in it. The conventional wisdom is to have at least three months' worth of living expenses set aside, and if you can do it, six months' worth stashed away is even better.
Three months of living expenses is not the same as three months of income. What will it take to maintain your lifestyle, rent/mortgage payment, groceries, monthly utilities, childcare, insurance payments, etc.? That's the amount you'll need.
If you are single or the sole breadwinner in a family, an emergency fund is extremely important because you don't have the luxury of a second income to cushion some of the emergency. My recommendations are as follows:
- Bare minimum for anyone: 3 months
- Children & 2 steady incomes: 3-6 months
- Children & 1 steady income: 4-6 months
- Children & no steady income: 6-9 months
