How Much Should You Have For Emergency Fund – Early last year, after the Broncos vs Steelers January 17th postseason game, I remember reading Dave Ramsey’s “Total Money Makeover.” Yes, I was desperate.
In one of the first chapters, he goes on (he literally can’t keep quiet) about having an emergency fund. Yes, others have mentioned it, but for me, Dave Ramsey was the first person to tell me I had to go for it. He was my first.
How Much Should You Have For Emergency Fund
Here’s the thing with emergency funds. Everyone seems to have it set up differently. Davvy-Poo Ramsey talks about putting money in an envelope under your bed so you can pull it out in an emergency. He believes that if people have an emergency fund readily available, they will spend it. He obviously believes his audience has no self control, maybe not, but I went the other way. I’ll always like Davvy-Poo for starting me on my emergency fund journey, but I digress.
A Complete (and Simple) Guide To Emergency Funds
I have everything electronic. I have $2,000 in my checking account as my “emergency fund” where it is readily available. I don’t have cash stashed under my bed like in National Geographic’s Doomsday Preppers (how the mighty National Geographic fell).
My active checking account is between $2,000 and $4,000 each month to cover my monthly expenses. At the end of the month, anything over $4,000 goes into my savings account and into my dividend portfolio. Here’s what I mean (infographic below):
I have a method to my madness. Two reasons why I set up my emergency fund like this:
This is where many people differ on how much they should have saved for an emergency fund. As for me, I try to have $2,000 in my emergency fund. That will cover my expenses for 1 month. Basically, my emergency fund gives me enough time to access my stock portfolio if needed.
Average Retirement And Emergency Savings By Age
I’ve never had a legitimate emergency that affected my income (I’m young and invincible), but if I ever do, I have a plan.
With my average monthly expenses of 2000. My emergency process would cover me for 7.5 months if I couldn’t make any money. That’s pretty cool! Yes, I have friends and family who would be willing to help me, but it is important to me to be able to support myself.
Wallet Squirrel is a personal finance blog from best friends Andrew and Adam about how money works, spin-offs and the benefits of smart profit investing. Includes MSN Money, AOL Finance and more! What would you do if your car needed major repairs? What if you lost your job or were hospitalized for a long time? These are things we don’t want to think about, but it’s very important to budget for them. Saving up for these types of situations will make this stressful time a little less stressful. Emergency funds are important to help you have enough money in case of an emergency. So how much should you save for an emergency fund? We will answer this question and more below.
An emergency fund or rainy day fund is money you can set aside for unexpected life events. If you lose your job or need to pay a large medical bill, an emergency fund can help protect you against life’s worst scenarios.
How Much Emergency Funds Do I Need? (photo From The Woke Salaryman)
The answer is very simple: avoid going into debt. We just don’t know what will happen in the future, so it’s best to prepare in advance. The COVID-19 pandemic is an example of an emergency fund that has highlighted the importance of having money saved in case of job loss or serious illness. It allows you to get through a difficult financial period without having to take out a loan or rack up high fees on your credit card. The last thing you want to do in an emergency is stress about how you’re going to pay for that emergency.
A recent Bankrate survey found that 35% of Americans now have less in their emergency fund than they did before the pandemic began. Thirteen percent have more than before the outbreak of the pandemic, and only a quarter have enough saved to cover six months’ worth of expenses. Twenty-one percent of people have no emergency savings at all. Many emergency funds have been depleted during the COVID-19 pandemic. It’s important to start saving for an emergency fund to reduce stress in the future. Tweet it
There is no one-size-fits-all approach when it comes to an emergency fund. If you have any debt, then you’ll want to start with a smaller emergency fund of around $1,000. If you manage to put away $100 a month, you’ll have an emergency fund of $1,000 in less than a year.
When you’re debt-free, most experts recommend a 3-6 month emergency fund for basic expenses. A necessary expense is one that you really need to live. This includes things like food, rent or mortgage, transportation and utilities.
How Much Emergency Savings Should I Have?
Another factor to consider is a stable income. If you are part of a two-income household or have a steady income for several years, saving 3 months’ worth of funds may be enough for you. If you own your own business or if someone in your household has a chronic illness, you may want to save up to 6-12 months.
At the end of the day, there is no magic number. It is important to think about your situation as this will help determine what your goal should be. No matter how long it takes you to get to your goal, it’s important to start. You’ll be much closer to staying ahead of the unexpected.
Start by making a list of the basic things you spend money on each month to determine how much you need to save for an emergency fund. For example, if you spend about $2,500 a month on basic expenses, you should try to set aside $7,500 to $15,000 in emergency savings. However, in certain circumstances you may want to save up to 12 months of costs. Here’s a great emergency fund calculator you can use to determine how much you need for emergency savings.
Your emergency fund should be easily accessible and in an interest-bearing account. However, having a high-interest account is less important than having quick and easy access to money.
How Much Should Be Your Emergency Fund Amount?
Some of the best options include a simple savings account linked to your checking account, a money market account that comes with a debit card, or an online bank that pays a higher interest rate but still allows you to quickly transfer money to your checking account. It is best to put this money in a separate account so that you cannot dip into it at any time.
When you have a sudden expense, it can feel like an emergency. But make sure you have criteria in place to make sure the sudden expense really needs an emergency fund. It should not be used for vacations or spending on new clothes. It is money that you have just in case a situation arises when you really need it.
An emergency fund is an important part of a solid financial plan. When you start an emergency fund, how much you save really depends on you, your situation, and how comfortable you are. It may seem like a lot at first, but if you ever need it, it will be worth it. You don’t have to save it all at once. It’s designed to keep you safe in an emergency, and only you will know what amount is right for you and your family. A financial planner can help you start saving in an emergency fund and keep you on track to meet your goal.
Alvin Carlos, CFP®, CFA is a fee-based investment advisor and financial planner in Washington, DC who works with clients across the country. He holds a master’s degree in international relations from SAIS-Johns Hopkins. Alvin is a partner at District Capital, a financial planning company dedicated to helping professionals in their 30s and 40s achieve their financial goals through smart investing, tax reduction, retirement planning and maximizing their money. Schedule a free informational call to find out how we can help you grow your finances.
Fast Cash Loan Vs Emergency Fund: Which Is The Better Contingency Plan?
District Capital is an independent, fee-only financial planning firm. We help professionals and entrepreneurs in their 30s and 40s raise their finances and maximize their money. We are based in Washington, D.C. and we work with people practically all over the country. Establishing an emergency fund is an important step in achieving financial stability and growth. Not only does this help protect you when big expenses arise or a spouse loses their job, but it also helps keep your other financial goals on track. When we educate clients about emergency funds, the following questions usually come up:
In general, yours
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