Can you believe that 76 % of Americans are living paycheck to paycheck? What happens when crisis hits and you need money fast? Forbes reported, 63% of Americans don’t have $500 in savings to cover life’s crazy surprises.
We all go through periods of time where it feels like everything is falling apart. Like, you turn around and boom the brakes need replaced. Start planning now for havoc in your life with this easy guide to emergency funds.
First, what exactly is the purpose of an emergency fund?
You might be thinking, it’s impossible and not necessary to have thousands of dollars just laying around for emergencies. You’d rather go to Vegas or buy some new gadget right now versus earmarking money for some unforeseen disaster that may never happen.
The truth is in life, things don’t go as planned (as much as I LOVE plans). A crisis big or small, will hit ya when you least expect it.
Here’s examples of why you need an emergency fund:
Natural disasters- with Hurricane Harvey an estimated 30,000 people may be forced to stay in shelters with estimated total damages around $30 billion. Approximately 1 million households are without flood insurance to cover devastating home and car damage.
Car and/or home repairs- if you live in the nicest neighborhood and drive a luxury car, these are two big ticket items that have big ticket repairs that can come around at any time.
Health emergencies- you may be young and healthy now; it just takes one misstep (literally) and you could end up in the ER with a broken arm and hundreds owed in medical bills.
Job loss– there’s always the chance that you may lose your job. Or even if your company doesn’t go through layoffs, you may experience health issues where you aren’t able to work for an extended period of time.
How much should you save for your emergency fund?
When it comes to determining the size of your emergency fund, you’re the boss. As Chief Financial Officer running the business of YOU, you can decide the size of your emergency fund. A good rule of thumb is to have at least three months of expenses saved up.
This is not necessarily three months of your salary, but it’s how much you need to live off to meet your monthly obligations and basics like groceries, and utilities. If you’re self-employed and your pay fluctuates, if your job position is at risk, if you have continuous health issues, or you simply like the comfort of having funds for a rainy day, save up to 12 months of expenses.
Where should you keep your emergency fund?
You never know when mayhem will strike, so your emergency fund needs to be somewhere you can access easily like a savings account, or money market account. It may be difficult seeing thousands of dollars sit there earning hardly any interest, (versus earning money in the stock market), but you get the peace of mind that your money will be there and not lose value.
A key part of a financial plan is having savings for a rainy day to tackle life’s little unpleasant (and oftentimes pricey) surprises. That’s the easy guide to emergency funds.
You’ve gotta 99 problems, but an emergency fund ain’t one.