…Do You Even Have an Emergency Fund?
Do you have enough stashed away to pay cash for an unexpected expense like a home repair? Can you keep up with your bills if you suddenly find yourself without a job for a few months?
These are some of the questions a recent USNews report asked and the answers might surprise you. The number of people with no money saved for emergencies has risen to 28 percent, up from 24 percent a year ago, according to Bankrate’s Financial Security Index.
So let’s start with what is an emergency fund? I like to look at an emergency fund as a rainy day fund, an umbrella. It’s for those unforeseen events that happen in life; you lose your job, an unexpected pregnancy, your car needs a transmission, the water heater floods the garage, and so on. What it is not is a vacation fund or a Harley fund!
You should shoot for an emergency fund of $1,000 while you’re busy paying off your high interest debt or any credit card debt, but have your ultimate goal to increase that to an emergency fund of three to six months of living expenses.
I think this is a good starting point for most everyone, but we can tweak it a bit based on your particular situation. There are a few different things that I think can help you figure out just how much you should have in your emergency fund. …let’s take a look at a few:
First, let’s assume you have paid off your credit cards and high interest loans, (because you are working on becoming debt free right?) now you need to figure out just how much a month’s worth of living expenses really is for your family. The best way to get a true look at your monthly expenses is to just take a look at your checking account and see what goes out for a typical month.
Do you own your home? Well if you do having 3 months of living expenses might not be enough if you run into a major repair. A good rule of thumb is to have at least 2% of your homes value in your emergency fund. For example, if your home is worth $200,000 you would want an additional $4,000 on top of the months of living expenses.
You will not experience a better feeling about your finances until you have met your emergency fund goal.
It is such a great feeling to know you have enough money set aside in case of an emergency and that your monthly expenses will not be affected and you will not have to worry where the money will come from to meet the unexpected obligation.
Figure out an emergency fund size that’s right for your life and start saving for it today. No matter how small you start out, something is better than nothing.
When things in your life don’t go as planned, you’ll be glad you have it.