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Quiz: Do you know how to Create an Emergency Fund?
by Staff
After you design and learn to stick with a monthly budget, an important next step toward financial health is setting up a solid emergency fund. Such accounts help people survive in the event of a job loss, illness, natural disaster or other emergency.

Which of these would qualify as an emergency worth dipping into your emergency fund for?

  • major car repair
  • kitchen remodel
  • vacation

What financial device do some critics say makes an emergency fund obsolete?

  • home equity line of credit
  • high-limit credit cards
  • payday loans

How much money should you have in an emergency account?

  • three months' living expenses
  • a quarter of your annual salary
  • five times the amount you spend on food each month

Which of the following should you NOT count on when calculating your emergency costs?

  • You will probably spend more than you normally do.
  • Insurance will cover you completely.
  • Food and shelter will likely be your biggest expenses.

What should you do if you want to set up a large emergency fund?

  • Put your money in an interest-bearing account.
  • Put your money in a high-yield mutual fund.
  • Put your money in certificates of deposit and savings bonds.

What is a helpful tool for starting an emergency fund?

  • an automatic deduction
  • piggy bank
  • direct deposit of your paycheck

What type of account should you use for your emergency fund?

  • money market account
  • checking account
  • ordinary savings account

What is the risk of trying to build your emergency fund too quickly?

  • You might get discouraged.
  • You can create a financial emergency by skimping too much.
  • It may be hard to find the right account to accept a large deposit.

Why should you pay off a credit card before building an emergency fund?

  • because you will pay a higher rate on credit card interest than you will receive from your emergency fund account
  • to prevent yourself from getting discouraged
  • to use the available credit on your card as part of the emergency fund

Why do some people argue that you should not defer 401(k) payments to build an emergency fund?

  • because the long-term losses you will have outweigh the benefits of having an emergency fund
  • because you can take a loan from your 401(k) fund in an emergency
  • because emergency funds are subject to double taxation