If you hate the stress and uncertainty with unexpected expenses, then today’s video is for you. You’ll learn how to find out much you should save for an emergency fund. In other words, what’s your emergency number? It’s like a sleep number. Your emergency fund number is designed for you to sleep better at night.
This is part of a series called, How to Make Yourself Recession-Proof (AKA Stop Unexpected Expenses or Unemployment from Coming in like a Wrecking Ball).
If you missed last week’s video, learn three tips on how to pay for unexpected expenses. **Spoiler alert!** The best way to pay for unexpected expenses is with an emergency fund.
It’s time to start expecting the unexpected!
Watch the video to find out your emergency fund number (and some sweet dance moves!).
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- How to Stress Less about Money
How much should you save for an emergency fund?
Use these three simple steps to find out your emergency fund number.
1. Decide how many months of expenses you want to save for
A standard rule of thumb is to save 3-12 months of expenses for your emergency fund. That’s a broad range! Of course, a three-month emergency fund is on the low end and 12-months is on the high end. To decide what’s right for you, think back on your career journey. What’s the longest period of time you’ve been unemployed? Never? For one month? Or maybe you’ve experienced unemployment pushing one year.
Now, with the pandemic be aware of what’s going on with your employer and industry. Is your company experiencing layoffs and/or furloughs? Also, have you taken off work for health emergencies? Here’s how Ashley paid off medical debt and saved $10,000 for an emergency.
Let’s be real. Your personality has a lot to do with how much you should save for an emergency fund. Do unexpected expenses give you a lot of stress and anxiety? Decide your emergency fund number by what would help you sleep better at night? I personally have a 12-month emergency fund.
For today’s example, we’ll say you go for a six-month emergency fund.
2. Determine your current monthly spending
In other words, how much do you need to live off if you lose your income?
For most people their monthly spending is their take-home pay or what they earn after taxes. Others have a lot of disposable income and few monthly obligations. If you wanna get your exact monthly spending, then look at how much you spent in total the last month.
For Average Joe, we’ll say if he loses his job, he can cut a few things and live off $3,000.
3. Multiply it out
Lastly, multiply it out, multiply it out, multiply it out, multiply it out. Kinda like the old school rap song, ‘Walk it Out.’
Simply take the number of months of expenses to save for and multiply it out by your current monthly spending. Bam! You have your emergency fund number or how much YOU should save for an emergency fund.
For Average Joe, he wants six months of expenses saved for an emergency and he can live off $3,000 if he loses his income. His emergency fund number is $18,000.
There’s power in first knowing your emergency fund number and defining what you want for your emergency fund.
Having thousands of dollars saved for an emergency fund can seem out of reach. When I do money coaching, I create a plan to show exactly how soon you can have a complete emergency fund saved (it’s lot faster than you’d think!). Stay tuned for the next video in this series on How to Make Yourself Recession-Proof. You’ll learn a game-changing trick to find money to save for your emergency fund. I want to hear from you! How would it feel to have thousands of dollars saved for a rainy day?