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As the saying goes, life happens. Since it just happens and we have no control over emergencies, it’s super important that we’re financially prepared for them. This is why you should always work to have an Emergency Fund, just in case of emergencies.
Experts agree that everyone should have 3 – 6 months’ worth of expenses in their emergency fund. You can use this Emergency Fund Calculator to figure out how much you need to have saved up.
Monthly rent or Mortgage: Here you enter what your monthly rent or mortgage payment is. Don’t include items like utilities. If it’s a mortgage, then include your escrow payment in there as well
Monthly utility payments: These are your household utilities such as Water, Sewer, Gas, Trash, etc
Monthly transportation expenses: Here you enter everything that relates to your transportation needs. If you own a car, include your monthly car payment, gas, etc. If you use public transportation, include how much you spend on uber, trains, etc every month.
Monthly debt payments: These are all your minimum monthly payments that you pay towards debt. These are credit cards, personal loans, etc.
Other essential monthly expenses: If there are any other monthly expenses that don’t fit into any of the categories above, enter them here.
Once all your info has been entered, the calculator will automatically calculate how much you should have in your emergency fund. 6 months worth of your monthly expenses is the safest bet!
How about if you’re starting from scratch?
If you have absolutely nothing saved or very little in your emergency fund, that’s okay too. Everybody starts from $0 but with patience and consistency, you can also build up your emergency fund.
3 to 6 months saved up adds up to be quite a lot of money for most. Using me as an example, I need about $12,800 saved up in my emergency fund to cover 6 months of expenses. When I started at $0, this seems like an impossible task. But just like a marathon, it only takes the first step to get started.
What I recommend doing is to break up your emergency fund savings goals to $1,000 chunks. Your first Target should be to save up $1,000 in your emergency fund. Once you’ve saved up $1,000, then your next Target is having $2,000. Month after month, year after year, you’ll always be changing that goal until you reach your 3 to 6 months off expenses saved up.
Let’s get one thing out of the way. Don’t store your emergency fund in cash. Because of depreciation, storing this money in plain cash means that loses value over time. You don’t want that. Instead, opt to save it into high-yield savings accounts or invest it into easy to access bonds.
For saving your money in a high-yield savings account, don’t use traditional banks. These Banks typically have very low-interest rates. Instead, use services like the Robinhood high-yield savings account or Betterment’s high-yield cash reserves.
If you’re interested instead in Saving your money in safe bonds, then consider using Betterment. I personally save my emergency fund in this type of account. All accounts are FDIC-insured so you can rest easy knowing that your money is safe.
Definitely check out Robinhood and Betterment when considering where to stash your emergency fund and check out their features.
Automate your saving
Do you know what the most effective way of saving is? It’s when you don’t have to think about it and it’s automatic. Automating your saving is hands-down the best way you can get started saving if you haven’t already.
If you have to consciously move money around between savings accounts or investing it every time you got paid, it’s easy to forget or not to do it at all. If you instead set up automatic deposits into your emergency fund bucket, such as Betterment, then you set it and forget it. Your money is saved every single month without you having to do anything.
In no time, you’ll learn to live without that 50 or $100 monthly deposit. With the magic of high-yield interest, your money starts working for you. You can save up a lot of money using this method.
I’ve written an article explaining how you can automate your finances and make your financial life that much easier and more rewarding. Definitely check it out.
Use apps to help you save
Here is a bonus to for you. Instead of just saving a portion of your paycheck oh, you can accelerate accelerate saving by using different apps that help you save more money.
I personally recommend using the app Acorns, especially if you’re a beginner. Acorns rounds up your everyday purchases to the nearest dollar and invest your change. So if you bought something for $5.50, Acorns takes $0.50 and invests it for you automatically. A super useful tool and promotes saving money! Definitely check it out.
Determine the right amount for your emergency fund by calculating your monthly expenses. This includes rent or mortgage payments, utilities, groceries, transportation, insurance premiums and any other recurring bills. Multiply this total by the number of months you would like to have covered by your emergency fund.
For many people, $5,000 would be inadequate to cover several months' expenses in the event of job loss or an expensive emergency. If that is the case for you, $5,000 would not be considered an overfunded account.
A $20,000 emergency fund might cover close to three months of bills, but you might come up a little short. On the other hand, let's imagine your personal spending on essentials amounts to half of that amount each month, or $3,500. In that case, you're in excellent shape with a $20,000 emergency fund.
While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.
People have different estimates about the best amount to save in an emergency fund, and the answer will depend on your income and spending habits. Generally, your emergency fund should have somewhere between 3 and 6 months of living expenses.
An emergency fund is a cash reserve that's specifically set aside for unplanned expenses or financial emergencies. Some common examples include car repairs, home repairs, medical bills, or a loss of income.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.
It's difficult to predict how much these or other emergencies could cost — but three to six months' worth of expenses is a good goal. If that seems too steep, start with a number that seems more reasonable.
The general rule of thumb is to keep three to six months' worth of basic essentials stashed in your emergency fund. But how much you need to feel financially secure may differ.
A good rule of thumb to give yourself a solid financial cushion is to have at least three months' essential outgoings available in an instant access savings account. For example, if you lose your job, it'll give you three months breathing space.
The American Rescue Plan Act of 2021 established a new $1 billion Pandemic Emergency Assistance Fund to assist needy families impacted by the COVID-19 pandemic. States, the District of Columbia, tribes operating a tribal TANF program, and all five U.S. territories are eligible to receive funds.
Key takeaways. Reasons people keep cash at home include emergency preparedness, financial privacy concerns and mistrust of banks. It's a good idea to keep enough cash at home to cover two months' worth of basic necessities, some experts recommend.
“We would recommend between $100 to $300 of cash in your wallet, but also having a reserve of $1,000 or so in a safe at home,” Anderson says. Depending on your spending habits, a couple hundred dollars may be more than enough for your daily expenses or not enough.
Those include things like rent or mortgage payments, utilities, healthcare expenses, and food. If your monthly essentials come to $2,500 a month, and you're comfortable with a four-month emergency fund, then you should be set with a $10,000 savings account balance.
An emergency fund is money that you set aside to cover unexpected, expensive events—like sudden loss of job or major illness. How much money should you have in an emergency fund? Experts recommend that you should have three to nine months of living expenses set aside.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
There is no one-size-fits-all answer to how much you should keep in an emergency fund, but Orman said that $1,000 to $2,000 is usually enough. “With an emergency savings account, if you have $1,000 in there, you have $2,000 in there, great,” she said.
Introduction: My name is Van Hayes, I am a thankful, friendly, smiling, calm, powerful, fine, enthusiastic person who loves writing and wants to share my knowledge and understanding with you.
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