BOSTON (CBS) – A really good use of your refund is to reserve the money for an emergency fund.

According to a recent MetLife American Dream survey 42% of consumers could not take care of expenses for more than one month if an emergency should arrive. And worse, nearly 3 in 4 Baby Boomers, many nearing retirement, say they lack an adequate safety net.

That’s not good! Everyone needs a rainy day fund! This is savings set aside for an emergency.

I like to refer to it as a Cash Stash.

Your emergency fund should be for an emergency of biblical proportions, you know the kind when it rains so hard and so long that the creeks and rivers rise and the basement floods!  Or we have a snow storm in October and without power you can’t work for over a week and you stay in a hotel until your home is warm enough to come back and then you need to replace all of the food in the freezer and refrigerator. Sound familiar?

Or it could be an illness that keeps you out of work. It may be helping out one of your kids or your parents with a financial crisis. You plan for such emergencies by having money saved in an emergency fund.

I’m big on planning and would want everyone prepared for any emergency that comes their way. So how much do you need in your Cash Stash? Figure out how much you need for living expenses each month, not the extras, the basics like the mortgage, insurance, gas, food etc.

Bare minimum for everyone:   3 months of living expenses
Children & 2 steady incomes:  3-6 months of living expenses
Children & 1 steady income:    4-6 months of living expenses
Children & no steady income:  6-9 months of living expenses

No steady income are those who have seasonal jobs like landscaping or get paid by earning a commission such as real estate agents. You may need even more of a cushion to get you through the tough times. Consider what the housing market is doing right now. Not much! So they are not earning very much but they still need to feed their family.

Your emergency fund should not be used as a vacation fund or a Christmas club. This is “you are out of work and need to pay the mortgage” money.

A money market account or savings account is a good place to stash your cash. I realize they are not paying a lot of interest right now but you have access to the money, which is the important thing.

Comments (2)
  1. Willow says:

    Are you kidding? Just filling the automobile tank with gas is an emergency just to get to work, if you’re lucky enough to have a job to go to. Maybe if all Americans had the same benefits and perks as our congress does there would be money left to put in a savings for that rainy day. Give me a break!!!

  2. Michiko says:

    Most of the things you point out is ppsurisingly appropriate and it makes me ponder the reason why I hadn’t looked at this with this light before. This particular article really did switch the light on for me as far as this particular topic goes. However there is just one point I am not too comfy with so whilst I make an effort to reconcile that with the main theme of your position, allow me see what all the rest of the readers have to say.Nicely done.