Opening a Reserve Fund
By: Source: AARP.org Date Posted: 2005-03-20 12:08:59
When financial emergencies strike, you need a place to turn for extra cash. That place is your Reserve Fund. Every consumer should have a Reserve Fund. This fund is a bank account that contains enough money to cover your basic living expenses for three to six months.
Open your Reserve Fund when your financial picture is strong and it will help you weather the rainy days that could appear in your future.
You can use a savings account or a money market account for your Reserve Fund. Use this fund to:
- Cover your living expenses if you lose your job.
- Pay for unplanned repairs to your car or home.
- Replace your refrigerator, car, or other large necessity.
- Cover your living expenses for the months after your spouse dies. You may need this money to pay your bills while you wait for your survivor's benefits to arrive or for your spouse's estate to be settled.
- Cover your living expenses for the six months after you suffer a disability. You may need this money to pay your bills while you wait for your benefit checks to arrive.
- Pay doctor or dentist bills that are not covered by insurance.
- Support relatives who suddenly find themselves in financial trouble.
- Pay property taxes or income taxes.
How Much?
Not sure how much money it would take to cover your living expenses for three to six months? Visit the Creating a Financial Plan section of the AARP Web site. You'll find information to help you figure out your monthly expenses in Step 3: Evaluating Your Cash Flow.
If you've already used this Web site to create a financial plan, check the Financial Planning section of your Financial Notebook. Multiply your Total Monthly Expenses by three or six, depending on how many months of expenses you want to cover. That's how much you'll need to deposit in your Reserve Fund.
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