Hi, everyone - I am working on starting a real emergency fund. Everything I've read says that it is appropriate to have three to six months of living expenses set aside, in case anything happened and you do not have an income coming in. That makes a lot of sense to me. I would be more comfortable with saving up 6 months - and anything more would be awesome. Obviously the point of an emergency fund like this is not to dip into it when you need extra cash - the real point is to have money ready for you. So, where do you put your emergency fund and how do you work on NOT spending it? I am still in the works of working out a budget, but have started thinking of ideas for an emergency fund. Do you think it's a good idea to open up a CD? That way, I honestly cannot dip into it without penalties? When the CD reaches maturity (and I would probably do a few months at a time, to be honest), I would put in more money into that account and make it into a CD again, so I can't take money out. What do you do?
Personally, I would not put it into a CD. I think it's important to save every month, and if I don't put the money aside right away, it's going to be spent. If you put it in a CD, are you still going to set aside money each month in a savings (to later add to the CD when it matures)? If you are afraid of having it in a savings account because you will spend it, you can always open a savings in a different bank from your checking, so it makes it harder to access the money via an instant transfer. It all depends on your spending patterns and your degree of self control. Good luck!
I have my emergency fund in a basic savings account. It's not good to put your emergency fund in a CD because you may not be able to get access to the funds if and when you need it. My fund is easily to get access, but it's not too easy.
I would go one farther and say to keep a portion of your emergency fund in cash in your home or another safe spot that is not a bank. There are many emergencies that would shut down banks and make it impossible to get to your money. Make sure you always have a cash stash and not for fun money, have it ready for a real emergency.
I'd have to agree with the rest that putting it in a CD may make it difficult for you to access when you need it. A simple savings account will do. And yes 6 months worth of living expenses is a more realistic timeline than 3 months. With the average time a person needs to look for a job in this country closer to 6 months rather than 3. Good luck!
I use a mutual fund, but your point about a CD is pretty good. If you have trouble keeping your hands off the money, the CD would keep you forming getting at it unless it was a real emergency. I've always been good at saving so I didn't think I needed to keep it in a place I couldn't get it. I've also tried to keep the fund money more on the 6 month side.
