Citi Personal Wealth Management
How much should you set aside for a financial emergency? Whether it's in case you lose your job, need to replace the furnace or have an unexpected car repair, your goal is to make sure you're covered without going overboard.
One rule of thumb says it's prudent to have six months of living expenses set aside in conservative investments, such as a savings account or a money-market, with these investments held in a regular taxable account. But give some thought to whether you need that much emergency money. Yes, if your job is tenuous and you are the family's sole breadwinner, keeping the full six months may make sense. But if both you and your spouse work, you may need less, because you can always cut back spending and live on a single paycheck if one of you loses your job. A caveat: The smaller emergency fund may not be prudent if there's a risk you could both lose your job at the same time because, say, you work for the same company or in the same industry.
If you've managed to amass a moderate amount of money in your regular taxable account, keeping a separate emergency reserve may not be necessary. For instance, you might have money in your regular taxable account that's earmarked for your children's college education or for your own retirement. If you lose your job, need to make major home repairs or get hit with steep medical bills, you could always dip into these investments.
In addition to tapping taxable accounts for a source of funds in the event of an emergency, other options to consider include:
As you ponder how you might cope with a financial emergency, don't just consider where you'll turn for cash. Also look to keep your cost of living under control, including.
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