Is Your Emergency Fund Big Enough?

The recent federal government shutdown has underscored the importance of a basic financial planning rule: You need a rainy day fund to cover emergency expenses, such as a major home repair, medical bills, or a job loss.

But many Americans lack even a small amount of savings to help them through an emergency. As a recent report by the Federal Reserve found, 4 in 10 adults said they wouldn’t be able to cover a $400 emergency expense without having to borrow the money or sell something.

Without cash on hand to cover unexpected bills, families often end up opting for costly strategies, such as running up credit card balances. Federal workers had to turn to food banks or tap their retirement accounts, resulting in tax penalties. Granted, setting aside those dollars in a rainy day fund is a challenge for many families. It can also be difficult to figure out how much you should to stash away.

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