Once you start investing you would realize that the markets can swing wildly and without a stash of cash to cover during an emergency, you could be forced to exit your investments in a down market. Hence, the need to have an emergency savings fund.
Also, all investments involve some risk of losing some or all of the invested amount. However, knowing you have some money set aside to cover in the event of an emergency would give you the confidence to take such calculated risks.
Furthermore, it helps improve overall financial security, as you don’t want to lose your job or suffer a debilitating illness and have to take out expensive loans to tide your family through the tough times. Hence, the need to have some money set aside to cover in the event of financial surprises life throws your way.
Experts differ on the exact amount that you should have in you emergency savings and for good reason. The amount required by people in a weak economy or industries prone to layoffs would differ from those in a strong economy and relative job security. It would also differ depending on the size of your family.
However, most experts recommend having enough money to cover 3-6 months of living expenses (housing, feeding, healthcare, utilities, transportation, personal expenses and school fees, excluding entertainment and nonessential shopping).
Should this funds just sit in a savings account, waiting for an eventuality, definitely not? Money market funds are great place to hold your emergency savings because they are easily accessible and pay higher returns than a regular savings account.