Everyone needs an emergency fund. You should have this cushion in place before you buy a new car, pay for a vacation, or anything else fun and entertaining. In the next two minutes, I will tell you how much you should be keeping in your emergency fund.
Have you ever had one of those months? The water heater stops heating, the dishwasher stops washing, and your family ends up on a first-name basis with the nurse at urgent care. Then, as you’re driving to work, you see smoke coming from under your hood.
Bad things happen to the best of us, and sometimes it seems like they come in waves. That’s when an emergency cash fund can come in handy.
My wife’s company laid her off last March, and it took her almost a year to find another opportunity. A primary reason our family was financially stable is due to our emergency fund.
A 2019 Bankrate survey found that 28% of Americans had no emergency savings. Another 25% of respondents said that the cash they had on hand would last less than three months in a financial crisis. Those stats are pretty eye-opening.
How large should an emergency fund be? There is no “one-size-fits-all” answer. The ideal amount may depend on your financial situation and lifestyle. For example, if you own a home or have dependents, you may be more likely to face financial emergencies. And if a job loss affects your income, you may need emergency funds for months.
However, your best bet is to have three to six months’ worth of your total living expenses (mortgage, rent, food, utilities, transportation, etc.). So, if you lose your job, fall on tough times, you can maintain your current lifestyle without racking up a ton of debt.
If saving several months of income seems unreasonable, don’t despair. Start with a more modest goal, such as saving $1,000, and build your savings a bit at a time. Consider setting up automatic monthly transfers into the fund.
Once your savings begin to build, you may feel the temptation to use the money in the account for something other than an emergency. Try to avoid that. Instead, budget and prepare separately for more considerable expenses you know are coming.
Keep it in a savings account or money market account, somewhere liquid – don’t invest it. You want to be able to access the money when you’re experiencing an emergency, but you don’t want to touch it unless you absolutely have to.
Sometimes people reach out to me in times of financial distress, and unfortunately, by then, it’s too late for me to help. That’s why it is so crucial to seek guidance from a financial representative. My clients and I take proactive steps to plan for their future. As such, they are better able to enjoy the lives they desire.
Please reach out to me at 904-366-9388 or firstname.lastname@example.org. I’d be delighted to speak with you!
Thank you so much for taking the time to watch this video!