Life can throw your curveballs. Whether it’s a surprise expense, sudden job loss or unexpected opportunity, having quick access to cash is key. An emergency fund protects you from the unexpected so you don’t have to go into debt. Let’s break down how much you should have for your situation and how to get started. A financial advisor can help you lower your taxes by optimizing your investments with a tax plan.

Five Reasons to Have an Emergency Fund

An emergency fund is a financial safety net set aside to cover unplanned expenses or financial emergencies. While many investors focus on maximizing their returns, an emergency fund should be in low-risk accounts that provide easy liquidity. There are many different types of financial emergencies that occur. While many households cover small unexpected bills through your regular paycheck, others overwhelm your finances and require tapping into your emergency fund.

Here are five common reasons to have an emergency fund:

• Medical or dental emergency

• Job loss

• Unexpected home or appliance repairs

• Car repairs or accident

• Unplanned travel expenses (e.g.: funeral)

Where Should You Keep Your Emergency Fund?

Investors need their emergency funds to be readily available when disaster strikes. Because of this, the accounts need to be fairly liquid and low-risk.

A few of the most common accounts for your emergency fund include:

• Checking accounts

• Savings accounts

• Money market accounts

• Short-term CDs (including CD ladders)

• Prepaid cards

• Short-term government bonds

• Cash in a secure location

While you may feel that you’re missing out on stock market gains, emergency fund money should not be invested in high-risk investments.

How Much of an Emergency Fund Should I Have?

Many experts recommend that you have three to six months of monthly expenses in your emergency fund. While this generic advice makes sense for some investors, other situations require different recommendations. Here’s how much emergency fund you should have based on four common situations:

• Stable career with low debt. Three to six months is a reasonable recommendation for households that have stable careers and small amounts of debt.

• Irregular paychecks or income. People who have irregular paychecks should have at least six to 12 months of expenses in their emergency fund. Many salespeople or seasonal workers fall into this category.

• Self-employed or business owners. Business owners’ income can fluctuate widely based on conditions outside their control. An emergency fund of one to two years of operating expenses protects them during a recession, loss of clients or when launching a new product.

• Retirees. When you’re retired, you don’t want to sell your assets to cover an emergency during a downturn or miss out on gains when the market is booming. Having a larger emergency fund enables you to cover unexpected bills without selling your investments. Ideally, your emergency fund should cover two years of expenses.