Create an “Armageddon Fund” to Save Money on an Emergency and Still Earn Interest
You’ve heard of emergency funds and they are essential for setbacks and financial pitfalls. In the event of more serious financial emergencies, the Financial Samurai offers what it calls the “Armageddon Fund.”
Traditionally, experts recommend setting aside 3-6 months of basic living expenses in your emergency fund. And your emergency fund needs to be liquid, which means you need to be able to get your money whenever you want, and that usually means placing it in a traditional savings account where it doesn’t pay any interest. Okay, maybe 0.01%. The bottom line is that you need a lot of emergency cash, but you don’t want to invest so much in your emergency fund that you have to lose when you return it .
Here’s what Sam of Financial Samurai has to offer:
If you get laid off, your business closes, and all other sources of income are shut down, you screw up if you don’t have a big enough Armageddon fund to hold you back until you possibly recover … Think of the Armageddon Fund as the big brother of all your emergency funds.
Sam’s strategy? Invest in CDs. You can earn at least some interest on your money, and if you lose your job, you can use some of the liquid money from your emergency fund, ideally until your AC is mature, and then you can start using the money in your Armageddon Fund “. … »We suggested something similar with the CD ladder :
The CD ladder is when you take a portion of your savings and buy a series of certificates of deposit in certificates that have maturities of 3 months, 6 months, 9 months and 12 months. As one set of certifications matures, you invest that money in a new ladder. You increase the profitability of your money by 50-100% if you keep it in a savings account, and the early withdrawal penalty is limited to the interest earned, so you never lose money if you have to pull out CDs sooner.
Either way, the idea is to save for a bigger emergency without leaving your money in an interest-free savings account, where it gets eaten up by inflation. It’s definitely a next-level goal that isn’t available to everyone (some people find it hard to save time on a minor emergency), but it’s a worthy money management goal to strive for nonetheless.
For more information, check out the full post at the link below.
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