You've heard of an emergency fund, and they're a must for setbacks and financial pitfalls. In case of larger financial emergencies, Financial Samurai suggests what he calls the "Armageddon Fund".
Traditionally, experts recommend saving three to six month's worth of basic living expenses in your emergency fund. And your emergency fund should be liquid, meaning you should be able to get to the money whenever you want, and that generally means putting it in a traditional savings account, where it earns zero interest. (OK, maybe .01 per cent.) The bottom line is: You want plenty of cash on hand for an emergency, but you don't want to put so much in your emergency fund that you're losing out on a return.
Here's what Sam of Financial Samurai suggests:
If you get laid off, your business shuts down, and all your other income streams die off, you are screwed unless you've got a large enough Armageddon Fund to hold you through until the eventual rebound... Think of the Armageddon Fund as the big brother of all your emergency funds.
The trick is to save for a larger emergency without leaving your cash in a no-interest savings account, where it's being eaten away by inflation. This is definitely a next-level goal that's not possible for everyone (some people have a hard enough time saving for a minor emergency), but it's a decent money management goal to strive for nonetheless.
For more info, check out the full post at the link below.
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