Most financial experts agree that you need enough in emergency savings to cover 3-6 months of expenses.
But according to a 2013 survey by Bankrate.com, 76% of Americans don’t have enough savings to last 6 months, 50% have less than 3 months in savings, and 27% don’t have any savings whatsoever.
The fact that one fourth of Americans are literally living paycheck to paycheck should be a sobering fact. That’s because without an emergency fund, any type of emergency—getting laid off, medical bills, car repairs, etc.—could send you deep into debt.
Fortunately, no matter what your current situation, you can prepare yourself now for these types of emergencies.
Why do I need an emergency fund?
An emergency fund is set aside to help cover unexpected expenses that are guaranteed to pop up in life. It’s not a matter of if these expenses will come around—it’s a matter of when.
How much should I put in my emergency fund?
Things break around the house, and cars need to be maintained and repaired from time to time. However, it’s the unexpected things like medical bills and losing a job that can really have negative effects on your finances for the long term.
The reason financial experts recommend you keep 3-6 months of expenses in savings is to provide a cushion for a job loss. That way you can maintain your lifestyle long enough to find another job. And when the other unexpected expenses come around, you’ll have enough money in savings to cover those, too.
How do I get started?
If the average family/person pays out about $2,000 in rent, food, gas, and other bills each month, then they should aim to have $6,000 to $12,000 in a savings account.
That amount can be daunting for a lot of people, but you don’t have to achieve it right away. If you can only set aside $20 a week, it will add up; and after only a year, you’ve saved over one thousand dollars.
Have patience as you build up your savings. Remember that having something in your savings account is better than nothing. You will be well on your way to financial independence, which brings great peace of mind.
Sticking with it
Make sure you don’t tap into your emergency fund unless it’s an absolute emergency. Don’t let yourself be tempted to use the money to take a vacation or buy something impulsively—you’ll lose months of progress if you do.
Saving money for a rainy day is a life-long endeavor. Once an emergency does come along—and believe me, it will—then you’ll need to build up your savings again to prepare for the next emergency.
Ultimately, financial independence is worth all the hard work. You won’t have to fall back into debt every time an unexpected bill pops up—instead, you can tap into your emergency fund when it truly is an emergency.
So don’t be afraid to start your emergency fund today, even if you can only start small. You’ll be happy you did.
If you do find yourself in a financial emergency, and you don’t have enough saved up, you can always apply for a cash advance or payday loan from Check City.