Are You Prepared for a Money Emergency?
This shocking headline caught my eye recently:
Almost 40% of Americans Would Struggle to Cover a $400 Emergency
And I’m not talking about an “OMG-Lululemon-is-having-a-40%-off-sale-and-I-need-new-Wunder-Unders” type emergency. I mean real-life emergencies. Car repairs, unexpected medical expenses, sudden job loss, etc.
Would you be prepared if a $400 need popped up overnight? Or would you have to pick up extra shifts at work, sell possessions, or go into debt by using a credit card or payday loan to cover the expense?
Listen. We all have different circumstances but one constant is the fact that life is unpredictable. An emergency fund provides a layer of security in an uncertain world.
What is an Emergency Fund?
An emergency fund is a stash of money intentionally set aside for a rainy day. This money should be kept separate from your personal savings and should only be used for emergency situations.
How Much Should You Save?
The stability of your income determines how big your emergency fund should be. In general, 3 months’ worth of expenses is suggested for households with more than one income, while 6 months is suggested if things are more unpredictable.
Remember, these are just suggestions and saving more is completely fine if doing so makes you feel most secure. For example, building a larger fund ahead of major life events such as relocating for a new job or starting a family may help you rest easier.
When determining the actual dollar amount to save, take into consideration the expenses that would need to be covered in case of a sudden loss of income. For my household this includes:
- 🏠 Rent
- 🚗 Car Insurance
- 💡 Electricity
- 🖥 Internet
- 📱 Cell Phone Service
- ❤️ Health Insurance
- 🍊 Groceries
- ⛽️ Gas for 2 cars
You’ll notice that things like Netflix subscriptions and money for dining out aren’t included on the list. Sure, these things are nice to have, but when it comes down to it, they aren’t necessities.
Trust me, if you lose your job, you’ll have much bigger things to worry about than being able to binge Parks and Rec for the 3rd time.
Get Started Now
Here are three things you need to start building your emergency fund:
Budget
If you don’t have a budget, there’s no way of accurately determining how much you’ll need to cover your monthly expenses. Figure this out before you do anything else.
Once you’ve got that sorted, tally up the amounts and multiply by 3 or 6 depending on your situation. Use this total as your target as you begin to save.
Need a hand creating a budget? Click below to get my FREE e-book: 5-Step Guide: Create a Simple Budget in Google Sheets 😉
Savings Account
You’ll need a place to put the money you’ll be saving. Remember, this should be separate from your day-to-day spending cash but still easily accessible when you need it. I suggest opening a savings account that allows for easy transfers should the need arise.
Discipline
In order to save money, you’ll need the discipline to do so above all else. At times, this may mean saying no to that new pair of shoes or deciding to stay in instead of going out. Just remember that these are small sacrifices to make in the name of financial security.
With an emergency fund in place, you’ll be better prepared to face the ups and downs of life. Just think how much easier you’ll sleep knowing a $400 emergency won’t completely rock your world.
