Creating a special fund to handle emergencies is the best way to start any investing journey. Everyone has emergencies: A just-in-case fund can reduce stress and prevent you from going into debt if your car suddenly breaks down, your roof needs repair or you simply need to make ends meet when you have a slow couple of months.
Put it in the budget
You don’t need a huge lump sum to start an emergency fund: You can start by just finding a few dollars every month. Set a monthly target and put it right in your budget. Even if you can only free up $25 each pay period, it will add up.
Select an account
There are many types of investment accounts. For an emergency fund, the best choice is typically an individual or jointly owned taxable account. Investment accounts aren’t guaranteed the way bank accounts are, but they might provide comparable or possibly better rates of return. Your savings can grow even faster when you earn interest on the money you set aside.
Choose your funds
To build your savings, you’ll want a mix of investments that aren’t too risky. Money market funds, like Homestead’s Daily Income Fund, aim to pay regular interest without unnecessary market risks. Depending on your tolerance for risk and when you need the money, you might put a small percentage of your investment into short-term bond funds or even an equity fund, to enhance the potential for growth, but your primary focus should be on preserving the capital you save.
How large should your emergency fund get?
Professionals typically recommend that you build up three to six months’ living expenses for emergencies. Anything more than that should be invested for other goals, such as retirement.
See Account Types
Learn More About Our Funds