Emergency Savings

If you don't have emergency savings, should you even bother investing in the stock market? Answer is probably not. Crude example but say all you had was $2,000 and you invested it in the market. If the market crashed then you'd have nothing to live on. That $2,000 could have at least covered your meals or some other crucial purchases for a few days. But if you put it in the stock market and the market crashed or the company you invested in collapsed, then that money is gone! So if you haven't saved for a rainy day, you're better off focusing on that first before investing any of it in the stock market. You'd be taking on too much risk, honestly.

So how much cash should you have saved for emergencies? According to Vanguard, you should sum up your monthly expenses, then make sure you have 3-6 months of that saved. You also want to make sure you place that cash in a savings account that will give you quick access to the funds - preferably, this should be a high-yield savings account so it accumulates substantial interest.

If you do save the funds in a high-yield savings account, take note of the minimum balance requirements because you wouldn’t want to start paying fees if you eventually withdraw the funds and your account balance falls below the minimum. Also take note of how long it will take to actually withdraw the funds - for example, can you withdraw the funds immediately from an ATM or have the ability to write a check? Or do you need to wait 3 business days for the funds to transfer to your checking account before you can withdraw it? You need to equip yourself with this information so you can better plan when faced with emergency.