Learn how to save for emergencies

So, how much should you have in your emergency fund? For unexpected expenses, consider having a minimum of $2,000 in emergency savings. But if your bills and spending are generally high, we suggest you save at least half a month of expenses.

Now, to prepare for a job loss, consider saving three to six months of expenses. I know, that’s a big range. So where should you be on that range? That decision should be based on how easy it would be for you to find a job with similar income. If you think that’s going to be easy, you may not need to set aside as much. But you should also consider the sources of income in your household. If you are the sole earner, you may want to be closer to six months. 

However, if you have other sources of income, you may be able to save a bit less. It all depends on your specific situation. It’s OK to take some time to save three to six months of expenses because that’s a lot of money. But every little bit you save helps. And remember, you can also take advantage of any lump sum that comes your way, like a tax refund or bonus. 

So, where should you keep your emergency savings? For unexpected expenses, you want your cash where you can get to it quickly. That’s why we recommend keeping it in a checking, savings, or money market account. The goal for an emergency fund is not to maximize gains. It is to manage risk, like preventing credit card debt, withdrawing funds when the markets are down, or tapping into an account that incurs a tax penalty.

For unexpected job loss, we suggest you keep your savings in an accessible investment account, such as a brokerage account, where you could earn some returns. Keep in mind your risk tolerance when choosing your investments. Another option, if you really need it, is to use a Roth IRA, given that contributions—and only contributions—can be taken out tax free before age 59½.