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emergency funds – how much should they be ?
in times of an emergency , such as a job loss or a furlough , which is quite common in the days of covid 19 , this is the one area you should concentrate on.
why do you need emergency funds ? to help you pay your bills during the crisis times – no job or layoff or between jobs .
most financial planners agree on a 3 to 6 times your monthly expenses ( just add up all your monthly expenses – rent , credit card payment , car loan payment , home loan payment , streaming services , dining out , groceries , cable , internet , electricity , heating , and cooling , petrol , gas , etc) and multiply it by 6 .
Now we have found based on the history of the stock market crashes – 1987 , 1992 , 1999 , 2007 – it takes around 3 years from the point of the crash to the point everything comes back to normal.
so , here is what we recommend .. have THREE YEARS of emergency funds , that is , 36 times your monthly expenses , in a liquid savings bank account – where you can get access to it in a day or two .
we also suggest having some cash at home in a safe – just in case the ATM cards don’t work or the banks are closed due to a long weekend . the safe will also be handy for storing precious items like jewelry . in the days before personal , portable safes, people used to have some cash stacked behind a picture frame .
The savings interest rates vary from country to country – the USA has 1 to 2 % interest rates per year , where countries like india have 6 % to 7 % per year.
Please visit the following site for a savings bank rate comparison in India