Unexpected car repairs, a last-minute doctor’s visit, or unplanned home repairs can quickly throw your finances off course if you don’t have the cash on hand to cover them. That’s where an emergency fund comes in. An emergency fund is a savings account that you only tap into when you have an unexpected expense. The goal is to have enough money saved up so that you’re never caught short when something comes up. So how much should you save? Let’s break it down.
How much money do I need in my emergency fund?
Most financial experts recommend having three to six months’ worth of living expenses saved up in your emergency fund. That may sound like a lot, but if you break it down into manageable chunks, it’s actually not as daunting as it seems. For example, let’s say you need $2,000 per month to cover your living expenses. That means you would need to have $6,000 saved up in your emergency fund. If you can save $500 per month, it will take you 12 months to reach your goal. Or, if you can save $1,000 per month, it will take you just six months!
Building an emergency fund may seem like a slow process, but it’s worth it to know that you have a cushion of cash to fall back on when unexpected expenses pop up. A spending fast can help you save money by eliminating unnecessary expenses for a period of time. Plus, once your emergency fund is established, you’ll have the peace of mind that comes with knowing that you’re prepared for anything life throws your way.
Ways to Boost Your Savings
If saving up three to six months’ worth of living expenses seems like too tall of an order, don’t worry—you’re not alone. Fortunately, there are a few ways that you can make the process a little easier on yourself.
One option is to start small and gradually increase the amount that you’re saving each month until you reach your goal. For example, if your goal is to save $6,000 and you currently have nothing saved, start by saving $50 per week for 24 weeks (which equals six months). Then, bump it up to $75 per week for the next 24 weeks and so on until you’re saving $500 per week—at which point you will have reached your goal!
Another option is to set up a separate savings account specifically for your emergency fund so that you’re not tempted to spend the money on non-essentials. Many banks offer high-yield savings accounts with relatively low monthly fees—so shop around and see what options are available to you. Once you’ve found an account that fits your needs, set up automatic transfers from your checking account so that the money is transferred on a regular basis without any effort on your part. This method makes saving for an emergency fund practically effortless!
Saving for an emergency fund may seem like a daunting task at first, but if you break it down into manageable chunks and commit to setting aside a fixed amount each month, it’s definitely doable. Plus, once your emergency fund is established, you’ll have the peace of mind that comes with knowing that should any unexpected expenses come up, you’re prepared!