No one ever knows when an accident or an emergency could happen. Whether it is a major medical bill, a car accident, or sudden job loss, having an emergency fund can help you provide for yourself and your family. Being prepared for the unexpected will take away some of the stress while dealing with these unexpected situations. Continue reading to see how much you should have saved in your emergency fund.
The financial rule of thumb for emergency funds is to save 3 to 6 months’ worth of expenses. The actual amount you should have saved up depends on your lifestyle, income, and expenses. Consider all of the different financial obligations that you and your family have that need to be paid for to determine your savings goal. Your emergency fund includes expenses such as housing, food, and health care, not entertainment, dining out, or vacations. You should have a separate savings account for unnecessary expenses and wants. If you put away a certain amount of money each week, you can easily build up your emergency fund.
There are several cases where you may want to save more than 3 to 6 months’ worth of expenses. During a recession, you should aim to save more in case you lose your job. If you are in a high-risk industry where layoffs are common or do not have steady income, you should save more in case you lose your income for a period of time.
It is important to have your emergency fund in an easily accessible bank account so you do not have to struggle to access it when you need it. Using an interest-earning bank account, such as a money market or an interest-earning savings account, can be accessed without taxes or penalties.
Only use your emergency fund for expenses directly related to an unexpected event. When you withdraw from the account, be sure to set up a plan on how to replenish it. You do not want to experience another emergency and not have money in the account to use.
Your emergency fund is there to keep you afloat in the event of an accident or an emergency. You do not have to shift all the money from your checking account to create an emergency fund. As long as you steadily save up your 3 to 6 months worth of expenses, you are making progress. Contact me for more information at (402) 454-7204 or email me at jason@fp-wealth.com.
Sources:
https://www.thebalance.com/is-your-emergency-fund-too-big-4142617