Rainy-day Money

When I meet with people, one of the first topics we discuss is "emergency fund" money. I ask a few questions, such as, “Do you have any funds set aside?”, “Where is it located?”, and, most importantly, “What would trigger you to tap into this account?”

Having a strategy for how to pay for emergencies is a key part of personal finance. That's one of the many reasons I want people to feel comfortable with their approach. I want them to understand that an emergency account can also help them move forward with a more comprehensive financial strategy.

As you can see from the accompanying chart, households appear to be committed to saving for a rainy day. Checking accounts and currency held by households is just a tick over $4 trillion, a steady increase from less than $1 trillion in 2019.

A comfortable amount of money in an emergency fund largely depends on a family’s situation. The fund can help pay for unexpected expenses, but it may also be flexible enough to cover other short-term needs. The important concept is to have a strategy and to understand the role the account plays.

If you'd like to hear more about my philosophy on emergency funds, you can listen to Episode 65 of the Life by Design podcast.

If it’s been a while since we discussed your emergency fund, it may be time to revisit your approach. Remember, there are no incorrect answers to rainy-day fund questions. The only wrong answer is to go without an emergency expense fund, at all.