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Basics Beginner: Building an Emergency Fund

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1.
When starting an emergency cash fund, it's always best to start with a high amount.
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False. If you don't get a windfall, you can set aside a comfortable amount, such as 5%. You can always add to it later.
2.
Treating your emergency fund as a bill to be paid gives it an element of priority.
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True. Usually, we can find money to pay our bills.
3.
Why are stocks not considered a good parking place for emergency funds?
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The stock market is volatile. It is possible for the price of your stock to be down when you need the money to cover an emergency expense.
4.
A retirement account is not a good candidate to hold an emergency fund.
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True. Retirement accounts require years to build up. When you take money out now, you can lose a lot of growth in future years.
5.
Should you ever consider adding additional money to your emergency cash fund?
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Yes. If you receive a bonus or raise at work, you should try to add money to your emergency cash fund, before you get used to spending the extra money. You might also consider looking for ways to trim your monthly spending, in order to add to your emergency cash fund.