Each January is a great time to reassess your emergency fund, the cornerstone of your financial well-being.
The Importance of an Emergency Fund
An emergency fund should be in a safe place, like a bank account or high-yield savings account, with no risk of loss.
It’s essential to make sure it’s big enough to cover unexpected expenses but not so large that you miss out on growth opportunities in other investment buckets.
Determining the Right Size
- Number of months you would need it to cover your expenses in an emergency
- Basic needs you’d need it to cover
Adjusting Your Fund
Regularly reassess your emergency fund, ideally once a year. If you find it needs to be increased, plan for it with potential bonuses or extra paychecks. If your fund is larger than necessary, consider reallocating some of the money to other financial buckets, like your personal escrow for travel or your retirement account.