As many have learned with COVID-19 shutdowns, having an emergency fund is an important financial strategy. The emergency fund can cover unexpected expenses such as a car repair or major appliance purchase and even loss of income due to a layoff.
The typical recommended emergency fund for someone working is three to six months of expenses. This amount is usually enough to cover an unexpected large expense or loss of a job. People may find after the COVID-19 experience, longer may even be preferable.
In retirement, we're keeping three to five years of expenses in an emergency fund of cash or invested in CDs, so that we do not need to sell stock investments at low prices due to a downturn as we are experiencing now. Stock usually recover within three to five years, allowing investments to be sold at favorable prices.
Hopefully, three to five years will be sufficient time for the stock market to recover from COVID-19.
For more on The Practice of Personal Finance, check back Wednesdays for a new segment.
This is not financial advice. Please consult a professional advisor.
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1 comment:
One of the things I learned from this pandemic is the importance of the emergency fund. I've seen people who were comfortable (and would think they are on top of their finances) in their jobs struggling because of the lockdown, I mean the real lockdown
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