23 Sep How Much Should You Keep In Your Emergency Fund?
Emergencies happen, whether your car breaks down, a tree falls on your house during a storm, or you suddenly become ill. It is important to have an emergency fund to take care of you and your family in case of emergency. But how much should you put away for a rainy day? And how do you save for emergencies?
How much should you have in your emergency fund?
There is no set number that you should have in your emergency fund. The recommendation used to be that you should have enough in your emergency fund to pay for three months of living. Recent studies have shown, however, that unemployment times are increasing rapidly. Experts now recommend that you should save for 9 months to a year’s worth of expenses with your rainy day fund. However, if your family has more than one income, it may not be necessary to have as much of an emergency fund as a family with only one income needs to have. If you have a few kids, naturally you will need to have more capital in your emergency fund than if you do not have a family. For some people, it works best to set aside a percentage each month, for others, having a certain amount always on hand is more beneficial. However, if you have too much in your emergency fund, you are wasting the opportunity to invest that money and allow it to grow. It is a good idea to have a “ceiling” on your ready-cash, and invest any excess capital.
How do you save for an emergency fund?
It can be incredibly difficult to save money, especially when you are living paycheck-to-paycheck. It can seem overwhelming to put anything aside when you are already pinching pennies. However, creating an emergency fund is easier than you think. The first step is to start small, have a small goal to set aside $300-$500 in an emergency fund. That can be reached in a few months if you save about $30/week. There are many ways to save that much a week, from using a grocery list, carpooling, and eating out less. Do not allow yourself to be tempted to use this fund for things other than emergencies. Put it in a savings account that requires a few extra steps to access the money. Emergencies should be limited to necessities such as unexpected health care, major car repairs, home repairs, etc. and should not include aesthetic or recreational expenses.