No one wants to find themselves in a sticky financial situation. It’s important to have that little extra padding in your checking account, but when you really want a new smartphone or a nice vacation, it’s tempting to take some of that padding out. Emergency funds, or “rainy day funds,” are important, and you need to know how much you should be saving for those rough financial patches.
Why Emergency Funds are Important
Financial emergencies can strike at any time. You may get hurt and need to pay upfront medical costs. A family member could lose a job. Your car may need major repairs. It’s important to have cash on hand so you can pay for any potential emergency you or your family might come across. These funds, however, should not be used for anything other than an emergency — it defeats the point of saving.
How Much Money Should Be in Your Emergency Fund?
Different families will need different amounts. Some people say $1,000 is enough, others will suggest saving up to a year’s income. Most experts agree, however, that you should have between three and six months worth of savings in case of emergency. This way if you lose your job, you’ll have an extra cushion to cover your mortgage or rent, car payments, utilities, food and other basic monthly expenses. Check out this emergency fund calculator to come up with a general estimate of what you might need.
Start Saving Now
The key to starting an emergency fund is to begin small. Ultimately, you’ll want to establish a fund large enough to support you and your family for a couple of months, but you don’t want to stash everything away immediately because if you’re short of cash, you may be tempted to use it for non-emergency situations. Set small and manageable goals so you’ll be more likely to reach them.
Emergency funds take time to grow, but having and maintaining one will help ensure your financial stability and safety. Contact us to learn more about how to save effectively.