- As of 2011, the U.S. savings rate average hovered around 5 percent of income. Most financial advisors recommend shooting for more than that, some recommending 20 percent. Not all of that 20 percent would go to your emergency fund, though. It would also cover retirement and saving for big-ticket purchases. If you're able to devote 5 percent of each paycheck just to emergencies, you're doing well, reports the website Savings Accounts.
- Unlike your retirement fund, you won't need to keep putting money into your rainy-day account forever. If you can save up enough to keep you afloat for six months of unemployment, you have a good cushion against disaster, although some advisers recommend you keep going until you have a year's salary reserved. Once you have that much, you don't stop or cut saving; you divert funds into retirement accounts.
- Some investment advisers say you should pay off your debts before you think about saving. If you have a 12.5 percent interest rate on your credit card, reducing the balance effectively earns you 12.5 percent interest, which is better than the rate of your savings account. Without a cash cushion for emergencies, though, you may find it harder to stop putting new bills on the card. Try to save enough for a $500 to $1,000 cushion, then set to work wiping out your debt. When the debt is gone, work on your emergency fund again, recommends Bankrate.
- One difference between retirement accounts and rainy-day funds is that you don't want your emergency money tied up where you can't get it easily. Instead of stocks or bonds, look for a savings account with a good interest rate or put part of the money into a short-term certificate of deposit. The interest rate won't be spectacular, but it's more important to keep your money where you can tap the account without penalties.
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