Kevin McCormally: I am Kevin McCormally of Kiplingers and I am here with Janet bodnar, the Deputy Editor of Kiplinger's Personal Finance Magazine to talk about Emergency Funds. Janet we have always told we should have a stash of cash setting somewhere in case something catastrophic happens. How much do we need ?
Janet Bodnar: A standard advice Kevin is that you should have enough money in your stash to cover 3-6 months worth of your living expenses.
Kevin McCormally: 3-6 months, who has get that much amount ?
Janet Bodnar: Exactly, that is what people say, people say they are blas, they say that's too much. So, OK do not start with 3-6 months worth. Start with enough money to cover 1 month's worth of expenses. That is a fine start, you can build on it later and it will make you feel good because you have the money in the Bank.
Kevin McCormally: OK, you tell me, I need to save for my retirement, you tell me I need to save for my kid's college education. Now you tell me, I need to put more money aside for an Emergency Fund. Is that more money or to these accounts co mingle.
Janet Bodnar: I think what you do is you take the part of money that you can afford to save and you kind of parcel it out. And I think that you should start with the Emergency Funds, simply because that is sort of your base. That is your emergency, if you laid off from your job, if the roof leaks, if the car breaks down. Plus it's probably the smallest part that you need, you just need enough to get you buy that emergency. Plus again once you get into the discipline of saving that money you can shift it to something else.
Kevin McCormally: OK, where should I put this money when I do set it aside ?
Janet Bodnar: Keep it safe, accessible in a Bank Account, in a money market fund, not in the Stock Market. This is your rainy day money, you want to make sure that it's there when you need.
Kevin McCormally: OK, thank you very much Janet.
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