Personal finance

How big should your “Rainy Day” savings account be? | Personal finance

Investors or savers interested in to become investors – have additional considerations.

With actions reach records, some people might find it frustrating to put all of their disposable income in a savings account – even if it is a high yield savings account – which earns next to nothing in the interest rate environment down today.

But remember, “The goal of your emergency fund is not to grow,” says Thomas Kopelman, financial planner and co-founder of Indianapolis-based AllStreet Wealth. Rather, the fund’s goal is to be there when you need it most. Once you’re well positioned with your emergency savings and stable with the rest of your finances, says Kopelman, “you earn the right to invest.”

You can still take advantage of opportunities that arise in the market, but think carefully about your tolerance for risk first.

Bera uses the example of maximizing an annual Roth IRA contribution – a decision that in some cases may take precedence over building up a large emergency fund, she says. Roth IRAs have contribution limits; your savings from rainy days don’t. So, if you know that you will have enough cash to keep increasing your emergency fund in a year, the tradeoff may be worth it.