How Much To Save For Emergencies
If the pandemic taught us anything it’s that the world can change in a heartbeat. One of the most important places we can bring that lesson is into our finances and our emergency savings.
How much do you have saved for an emergency? Don’t feel bad if you don’t have much because most Americans can’t even cover a $400 emergency expense. So how can we change that? And more importantly, how much do you actually need to save up for an emergency?
What Is Considered An Emergency?
An emergency expense is something that is sudden, unexpected and cannot be covered by your normal finances. A prime example of this is medical costs. An emergency room visit, ambulance ride, medical test or hospitalization can all be reasons to dip into an emergency fund.
Emergencies can also include funeral costs, critical car or home repairs or needing to cover bills due to suddenly losing a job. An emergency is something you absolutely must pay for, that is unavoidable, but cannot be covered by your normal finances.
Starting An Emergency Fund
Starting an emergency fund doesn’t require a huge initial deposit (but if you can make one go for it). Keep in mind this is not your general savings account. This is not a savings you will use for a new car or a down payment - it exists solely for emergencies.
You can start a fund by starting a regular savings account at a bank (the safest option) or by squirreling away cash in a safe place. Just be sure you know where your money is!
Your best bet is to set aside a percentage or dollar amount out of every paycheck into your emergency account every week or month so that it builds up gradually. You don’t have to contribute to this fund forever either! You set a goal amount and you contribute to the fund until you reach it. If you have to take some out for an emergency while you are saving up don’t worry about it - it is there to be used!
How Much Should I Save?
A general rule of thumb is to save up 3-6 months of your expenses. Add up all of your monthly expenses including food, all utilities and anything else you need and multiply to see what your total will be. Some people stay around 3 months while others shoot for 6 - the choice is yours.
After 2020 many are choosing to save a little more to have a little more security heading into the future. Where will you feel comfortable?