Emergencies, given their nature, are unpredictable. Situations, such as a surprise car or house repair, sudden job loss, accident or unforeseen illness can devastate a family’s daily cash flow. Although people can’t always avoid emergencies, they can take some of the financial sting out of these events by having an emergency fund. One can create such a fund by putting their money in a bank account at a reputable bank such as bankpatriot.com.
If you’re planning to build an emergency fund, you might be wondering how much you should save. Keep this guide in mind to determine the amount you should put in your rainy day fund.
Good: Three Months’ Worth of Funds
At the minimum, it’s important to have three months’ worth of emergency cash. This means if you need $4,000 a month to pay for basic needs like food, gas, utilities, rent, or mortgage, then you must have $12,000 stashed in your emergency fund account.
Better: Six Months of Rainy Day Funds
A minimum of six months’ worth of living expenses is required if you have someone who depends on you financially, such as your spouse or your children. Additionally, if you work in a job with a high turnover or injury rate, you’ll want to save twice the amount of emergency fund compared to an individual who works in a company where layoffs seldom happen.
Best: A Years’ Worth of Emergency Savings
Once you get better at saving and learn how to spend wisely, work toward accumulating at least a year’s worth of emergency cash. If you are a high-wage earner, challenge yourself by saving $100,000 and then parking that amount in a safe investment instrument such as a time deposit account.
If you’re looking to build an emergency fund today, set aside three months worth of living expenses. Then, work your way up to 6 or 12 months’ emergency savings depending on your situation. The money you save today can help prepare you for the emergencies of tomorrow.