No one likes to think about an emergency, financial or otherwise, but it is important to be prepared for unforeseen circumstances. Financial emergencies can and do crop up, often through no fault of our own. Whether it is sudden job loss or an unforeseen medical problems, there are many reasons to create a solid emergency fund.
Creating an emergency fund is one of the best ways workers can insure themselves against unforeseen problems. Every worker should have an emergency fund set aside with at least six months worth of normal living expenses. This will allow you to more easily recover from any type of financial shock.
Of course the key to a steady and reliable emergency fund is to reserve it for true emergencies. Things like dinner out or a must have sweater are not emergencies and should not be treated as such. It is important to budget properly in order to find the money for your emergency fund, and it is just as important not to tap that emergency fund unless a true emergency occurs.
The emergency fund you create should be kept in a safe investment, like a money market fund or a savings account. It is important to keep the money safe and available, since you never know when you might need it. It is a good idea, however, to try to earn a good return on the money in your emergency fund. After all, you worked hard for that money; why not let it return the favor? By shopping around it should be possible to earn at least a decent return on a money market fund or savings account without putting the money at risk.
While you are at the bank opening that savings account, it may be a good idea to invest in a safe deposit box as well. Putting valuable documents like insurance policies, savings bonds and financial statements, in a safe deposit box is a good way to keep them safe and protected in the event of a fire or natural disaster. If you do not want to rent a safe deposit box, putting these documents in a fireproof safe in your home may be a good substitute.
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