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Building Your Emergency Fund

How to calculate what you might need in the case of an emergency

Morningstar Editors 09.08.2013

You've figured out your goals. You know what they'll cost. So you've put all of your money into your investment portfolio.

Then you lose your job. Where will you get money for food and rent? You don't want to dip into that investment portfolio. After all, you've built it with a particular goal and time frame in mind. Touch it now and risk making your future dreams unattainable. That's why it's important to set aside money in an emergency fund before you begin investing. Here are some pointers for what your emergency fund should cover, how long it should last, and where to put it.

What To Include
Don't assume that any future unemployment insurance payments or redundancy pay can take the place of an emergency fund. Think of collecting either of these as a way to strengthen the safety net you're constructing. It shouldn't be your sole support. And if you do earn yourself a welcome redundancy package or collect unemployment insurance, your emergency fund will simply last longer. We recommend that you cover all conceivable expenses in your emergency fund.

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