Determine the right emergency fund amount for your life

No one knows what the next crisis will be, but whatever it is, having a safety net will help make it easier to weather.

• At the very least, you’ll want three to six months of living expenses saved in case of emergencies—anything from losing your job to an unexpected medical bill to a major urgent home repair.
• This doesn’t mean you need to save three to six months of your salary. The idea is that if you were to lose your job, you should have enough saved to cover three to six months of necessary expenses for a few months: rent or mortgage, food, utilities and insurance, for instance.
• If you don’t have enough to cover at least three months of expenses in a savings account right now, make it a priority to get there. That may mean putting off other purchases and major travel until you’ve accumulated enough to cover your basic needs for a short time.
• On paydays, see how much money you can funnel into this account while still leaving enough income to cover your necessities. To make the process easier, set up an automatic transfer on paydays from your checking account to a savings account—you’ll save first and spend second, which is the key to any successful savings plan.

Keep your savings safe

Where you put this money is another consideration.

• Initially, you may want to start with the safest place possible, such as a bank savings or checking account. Unfortunately, those accounts often pay little or no interest.
• Consider stashing your cash in a money market fund that may yield more in dividends, such as the Thrivent Money Market Fund.² The Fund typically requires a $1,000 minimum investment for retirement or tax deferred accounts, but you can start lower by setting up a $50-per-month automatic investment plan. (See: Investing $50 a month could add up nicely for your retirement)
• As your emergency fund grows, you might want to move some of it to a place that offers some growth opportunity. If you’re earning a good salary, your emergency fund might eventually balloon to between $25,000 and $50,000, or more. Over time, with inflation at about 2% per year, the value of your savings will actually decline if you aren’t earning at least that much each year.
• When you have a substantial amount to work with, consider shifting some of it to a conservative mutual fund, such as the Thrivent Moderately Conservative Allocation Fund, to give your safety net the potential for growth. This Fund is the most conservative option in Thrivent Mutual Funds’ suite of asset allocation funds, seeking long-term capital growth while providing reasonable stability of principal. Of course, asset allocation funds can lose money, but they do offer greater diversification than individual securities or traditional equity funds that invest almost entirely in stocks. While diversification can’t prevent losses, it may mitigate some of those losses in a down market.

Develop a spending strategy for your emergency fund

Although it may be tempting to invest your emergency fund earnings in something slightly more aggressive, that could defeat the purpose of having an emergency fund. If your fund takes a big dive in a bad market, it may essentially wipe away much of the money you’d been counting on for a rainy day.

• If you need to use your emergency cash, it helps to develop a spending strategy. You may decide to spend down any cash you have in a bank account or money market fund first. Then, if necessary, turn to the cash you have invested in conservative mutual funds.
• If you ultimately need to tap into your emergency fund, make it a priority to replenish it after you get back on your feet. Set aside money at regular intervals until you’ve reached your target fund amount.

Over time, having an adequate emergency fund can give you peace of mind and a fallback plan in case of a job loss or market downturn. Once you’ve built up a generous reserve, keeping the money in the right place can help you maintain its value.