How Much Should Be in Your Emergency Fund?
Emergency funds are critical in securing your financial success in unexpected circumstances. That said, it’s often difficult to pinpoint how much you should be keeping set aside. In this blog, we’ll talk about the general guidelines for emergency savings.
What Is an Emergency Fund?
An emergency fund is a separate account used to cover or help with unexpected expenses. Subsequently, this account is not part of a nest egg or long-term savings — it’s solely set aside as an emergency safety net.
How Much Should Be In Your Emergency Fund?
The most important piece of knowing how much to save is knowing how much you regularly spend. Financial experts commonly advise saving 3-6 months of expenses to help get by in the event of losing work. Your monthly expenses should include your rent or mortgage, utilities, food, healthcare, transportation, personal expenses, and debt repayment.
You do not necessarily have to include your non-essential costs, like subscriptions or vacations, which would theoretically be eliminated in an emergency.
Assess Your Situation
Every person has their comfort level with emergency savings depending on their financial situation. On average, it takes about five months to secure a new job, but some careers may take more or less time to secure a new position. You may also want to consider growing your emergency savings if your income isn’t steady, you’re retired, or during an economic recession.
Ultimately, your emergency savings are supposed to make you feel secure in your financial footing. It may be completely appropriate to have larger emergency savings if it makes you feel more comfortable.
Every Contribution Counts
An emergency fund isn’t built in a day. For some, this can be incredibly discouraging — what really is the purpose of an emergency fund when it’s not large enough to help in case of an emergency?
The purpose is this — every contribution matters. In the event of a medical emergency or loss of work, every dollar matters. And so, while you’re able, every dollar contributing to getting to that benchmark matters.
For example, if you set aside $25 weekly, you would have $2,600 saved at the end of two years. Every dollar added to that contribution further compounds and gets you closer to your goal.
How To Start Building Your Emergency Fund
The simplest way to build emergency savings is to work for a first goal, like one month of expenses. Rather than considering this goal as something you’ll contribute to if you’re able, build this contribution into your monthly budget. You can also implement an automatic savings plan, which will automatically contribute a fixed amount to your savings account from your checking.
If your budget is stretched thin and you don’t have any extra money to contribute to an emergency fund, it may be worth finding ways to cut down your monthly expenses. Remember, even an extra $50 each month will add up over time.
Start Building Your Emergency Savings With Landmark
There’s no better time to build your emergency savings. At Landmark National Bank, we offer a variety of savings solutions, including smart savings and CDs, to help build your financial future. Find a Kansas location near you and get started today!