The New Emergency Fund Advice

Monday Nov 29th, 2021

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The New Emergency Fund Advice

The standard advice on emergency savings has always been three to six months' worth of income, which is a massive hill to climb. But when COVID hit, many people discovered that even six months wasn't enough.

So, what now? Telling people to save a year's worth of income won't help, even though that's what many needed. Financial planners still recommend at least three months of savings, but they also suggest a more diversified income approach. 

  • To begin, work on paying off debt. With less debt, you'll have less worry about making your payments if you lose your income temporarily. You'll also have more to add to savings once you've paid off the debt. 
  • Then look at options for creating a side income. Make that as passive as possible. There is no one-size-fits-all strategy here. Some people may invest in dividend stocks. Others may start a side hustle or second job, especially if they have no money to invest. Some may purchase a rental property or carve out a room to rent on Airbnb. There is a myriad of ways to generate an additional income flow. Best to create this while you don't need it than to wait until you do.
  • Finally, pay yourself first. Set up automatic payments to your savings account, separate from your checking. If you don't see it, you may not miss it.

 


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