Along with paying off debt, an emergency fund should come before other financial goals like saving for a down payment on a home, funding your child’s future college, and even investing for your retirement.
Conventional wisdom suggests keeping your emergency fund in a place that’s safe and readily accessible (like a savings account). But with interest rates so low, why set aside money you hope never to use in an account where it’ll earn little to no interest?
A safe approach would tread the line between reasonable liquidity (knowing your money will be there when you need it) and growth (earning enough interest to at least keep pace with inflation).
The Cost of Financial Safety
The first step to determining how much money you should be saving will require you to determine what your household spends in a typical month. Next, separate the costs of the necessities from the non-essentials. Lastly, take the monthly cost of your necessities and multiple it by at least three. Industry experts recommend saving enough money to cover at least three to six months of living expenses.
Taking the Next Steps
Ready to take the next steps to improve your financial health? Visit the Texas Bar Financial Wellness Portal, available for members of the State Bar of Texas.
This tool offers online assessment tools and helpful articles for you to explore and improve how you are spending, planning, and protecting your assets. Financial wellness can bring you peace of mind and help you live well today and plan for tomorrow.