Set Aside The Funds You Might Need For A Rainy Day

Published Wednesday, October 5, 2016 at: 7:00 AM EDT

You've probably been told time and time again about the importance of saving money for a "rainy day." And it's sound advice when you think of what could happen if you suddenly lost a job or had an unexpected medical illness or injury. If you have money set aside to handle emergencies, you'll be better equipped to weather the storm.

But how much money is needed in your rainy day fund? Frequently, people underestimate what they really need to live on and may come up short when the chips are down.

The conventional wisdom has been to stash away enough so you can live comfortably for a period of about three to six months. But that may not be enough at a time when it's hard for unemployed workers to find jobs and out-of-pocket medical costs continue to skyrocket. Also, make sure you factor in expenses other than your fixed costs for a mortgage and monthly car payments. Utility bills, your cell phone plan and other costs can really add up.

It may be safer to set up a fund that you estimate will last nine months to a year.

Where should you keep the money? Most people use an account at a bank or credit union or money market fund. If you want to consider options that earn income, just make sure they're very low risk and that you can get the money right away in case of an emergency.

This article was written by a professional financial journalist for Preferred NY Financial Group,LLC and is not intended as legal or investment advice.

An individual retirement account (IRA) allows individuals to direct pretax incom, up to specific annual limits, toward retirements that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount to their Tranditional IRA. Contributions to the Tranditional IRA may be tax-deductible depending on the taxpayer's income, tax-filling status and other factors. Taxed must be paid upon withdrawal of any deducted contributions plus earnings and on the earnings from your non-deducted contributions. Prior to age 59%, distributions may be taken for certain reasons without incurring a 10 percent penalty on earnings. None of the information in this document should be considered tax or legal advice. Please consult with your legal or tax advisor for more information concerning your individual situation.

Contributions to a Roth IRA are not tax deductible and these is no mandatory distribution age. All earnings and principal are tax free if rules and regulations are followed. Eligibility for a Roth account depends on income. Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions).

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