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Here’s a more financial proof alternative
It is always better to have an emergency fund than none at all, but if you desire to make yourself more financially proof for all types of situations, the 1–3 month emergency fund is not the way to proceed.
What You Should Do Instead – Go with a six to twelve-month emergency fund.
And Here Are The 5 Reasons Why:
1. Cover yourself for up to a year if you lose your job or a primary income source.
You can chill if you’d like or take your sweet time recovering the loss in income. You won’t rush into garbage opportunities nor compromise your happiness for something that isn’t in your wheelhouse of interest or skillset.
2. Take a sabbatical.
I recently wrote an article, 10 Ways To Take A Sabbatical Without Financial Worry.” Sometimes when you lose a primary income source, you gain clarity quickly on what matters most to you, which might not be the job you’ve been working or the income source you just lost.
Maybe you’re looking for something else entirely, and it’s time to make a complete 360-degree pivot.
Having six to twelve months of leeway gives you this type of freedom.
3. Be prepared for catastrophic events.
We can’t predict everything in our future, but we can be better financially prepared for different events that occur.
More often than not, a 1–3 month emergency fund will be wiped out in a blink of an eye. It’s not a sustainable source of income, and three months go by quickly.
4. A 6–12 month emergency fund can earn interest.
Say what? My emergency fund can make me money? That’s right. It can.
Let’s say your emergency fund was $50,000.
If you put it in an interest-bearing account that earns 10% annually, you can earn a whole extra month of expenses by doing nothing. The more you put away, the harder your money will work for you.
5. Financial stress is burdensome. After you lose an income source, money is the last thing you want to be concerned about.
Incorporating a 6–12 month emergency fund will ensure you avoid unnecessary financial strain and give you more focus to determine your next steps.
Will a 1–3 month emergency fund hurt you? No. It won’t. It’s an incredible stepping stone. Most people don’t have any sort of savings. So, if you have a 1–3 month emergency fund, you’re still way ahead of the ball game. But why be ahead of the ball game when you can hit a homerun?
What are your thoughts on the one to three-month emergency fund?
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.