There are different philosophies when it comes to how much should the emergency fund be. There’s a chance that we might over-fund or under-fund it, thus exposing ourselves to financial risks.
Reasons why we must not OVER FUND our Emergency Fund
Reason #1
SAVINGS ACCOUNT CANNOT OUTPACE INFLATION
Emergency funds should be placed at a very liquid asset. The best place to put it is in a SAVINGS ACCOUNT or Checking account. Most Savings Account from big banks have an interest rate of 0.25% per year while some rural banks offer up to 1% per year. There are also some online banks today that offer up to 3.1% interest rate per year. But still, over-funding your savings account INCREASES YOUR LOSSES. Thus, you lose money.
Reason #2
OPPORTUNITY TO FUND YOUR FINANCIAL GOALS
Remember that you have financial goals, too! You should also fund them! Retirement plan, education plan, saving for your dream house, or even paying off your debts and high-interest credit cards!
How much should your emergency fund be?
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