Do you have a rainy day fund? Is there enough in there for a true emergency? We can help you prepare your emergency fund for even the toughest of storms. Just dig into this easy-to-follow guide and get to know what you need.
If you lost your job tomorrow, how long would you be able to survive on your emergency fund? While most people like to get back to work immediately, sometimes it can take months to find work in our current economy. In the meantime, you still have to survive — and that means you need emergency funds. Build up your fund and get prepared with this short survival guide.
Don’t Let Emergencies Set You Back. Read This First!
What Constitutes an Emergency?
Everyone’s definition of “emergency” is slightly different, at least when it comes to dipping into savings. People who make a lot of money can probably just pay for a new tire out of pocket if one goes flat, but for someone on a shoestring budget? That’s nearly impossible. It’s up to you how you define “emergency” in the scope of your lifestyle.
For the sake of an emergency fund, you should be looking at the prospect of being unable to work, long-term medical problems or losing your home to a fire. How long could you survive on your savings? While most of us have been taught from an early age to save, save, save, most people would only be able to survive a week or two on their savings if they had no income.
What is Your Monthly Budget?
To create a rock-solid emergency fund, you need to know how much you typically spend each month. You also need to identify where you can cut back or stop spending should a disaster occur. Sit down and make two budget sheets: actual monthly spending and emergency spending.
The first one will probably include fast food, extra packages on your cable bill, unlimited phone data and other splurges you can currently afford. This budget also includes your rent or mortgage, car insurance, utilities, groceries and other necessities.
The amount on the second list should be pared down to the “bare bones” absolute necessities. These are the items you cannot live without, like housing, food, utilities and transportation. They say no matter how much you minimize, you can always cut out something more.
If, for example, you are out of work, you will need to have a phone or computer with Internet in order to apply for new jobs. You can eliminate the Internet service fee from your emergency budget by going to a public library, or even a McDonalds, and using Wi-Fi Internet service. Or, you might make a deal with a friend or neighbor who splits their bill with you to allow you temporary access.
How Long Can You Live on Savings?
Financial advisors say you should have three months worth of expenses in your emergency fund. That means if your monthly budget is typically $3000, you should have around $9000 set aside. If your emergency budget is less, you can shoot for three times that amount instead.
The goal is to be able to survive on your emergency fund for three months. If you have a medical condition, you will need to add in extra for medications and care other people may not have to budget for. Children account for many unexpected or emergency expenditures, so if you have little ones, save a little more.
No one said creating your emergency fund would be easy. Unless you’re raking in the cash at work, you’ll probably need to scrimp and pinch the budget a bit to put aside money, all while still paying your expenses each month. But you CAN do it.
Finding it hard to resist temptation? Set aside a percentage of your paycheck to be automatically deposited into savings. You won’t even miss it, and before you know it, you’ll have more money saved than you ever thought possible.
~Here’s to Your Success!