Step 2 in the 7 Steps to Financial Independence is focused on building a financial cushion so that when the unexpected happens, you have reserves to fall back on. Creating an emergency fund has another benefit – building responsible financial habits for the long-term.
The suggested amount of how much to save in your emergency fund differs from person to person. Most experts agree that an emergency fund should hold at least three months in total expenses. In My Financial Plan we calculate three-, six- and 12-month emergency fund levels, and help you save for whichever you choose. We’ll also provide you with affordability insights as you customize your goal. To keep you on track to reaching your goal, we’ll let you know if we think you can comfortably save the amount you choose. If not, we’ll recommend a few adjustments so you can save at a pace that is right for you. An emergency fund should be saved in a liquid account. This refers to an account where funds can be redeemed without a significant delay or depreciation in value. A good example is a savings account at an FDIC-insured bank.
After you decide how much and where to save, we help you create a plan around how to save through a dedicated goal named “Save an Emergency Fund”. This goal allows you to define the anticipated time frame for your savings goal, as well as the dollar amount of your goal and which account to save it to. After you enter this information, the goal then helps you understand how much you need to steadily save to reach this goal.
After this goal is set up, we monitor your progress and provide you with updates. When you reach your “Save an Emergency Fund” goal, we’ll automatically mark Step 2 complete for you.
Move onto Step 3 - Employer Matching Contributions