What is an emergency account?

An emergency account consists of money that you put aside for an emergency in the future so that you are prepared.

What is the difference between a savings account and emergency account?

Both accounts are savings accounts. This means that you open “savings accounts” with your bank (online or brick and motor) to save your money for future events. It is best to keep your regular savings account separate from your emergency account.

Savings account

Eg: saving to buy a house, car, furniture, or to go on vacation etc..

Emergency account:

Eg: keeping money saved in case you lose your job unexpectedly, you have a health emergency etc..

Where you should not keep this money?

Generally, it is not recommended to take the money that you have set aside for an emergency and store it in the stock market. Although you can sell the stock and receive your money you are betting your “safety net” on the markets and on that company. As we have seen markets fall in a matter of days, you do not want the same to happen to your emergency money.

You should not store this money in real estate. When you create an emergency account, you need to make sure that the money is accessible when you need it. This means that is must be in a relatively liquid market.

Where should you keep this money?

You can open a savings account or a high yield savings account. With a high yield account, you receive an APR on your money. This means that the bank pays you monthly for keeping your money in the bank with them.

You can open a savings account with a Credit Union, as your emergency account. The reason I recommend this is that credit unions may require you to physically be there to withdraw money or make any changes, which can discourage you from randomly taking some money out of your emergency account.  

Can you have more than 1 emergency accounts?

YES!!!

For example, you can open a high yield account, as well as open an account with a credit union. This reduces your risk, and increases your safety in the future.

How much should you allocate?

You must set aside your TOTAL expenses for a about 6 – 12 months.

This includes:

• Rent + Utilities
• Transport
• Phone bill + subscriptions
• Food
• Leisure expenses