Emergency Fund – Your Financial Lifeline
Life happens. Urgent car repairs, medical emergencies, loss of employment, or any number of unexpected expenses can – and sometimes do – occur. Having an emergency fund can help you get through such events, and guard you against feeling the financial pain associated with any unplanned costs.
Aiming to save up three to six months’ worth of expenses is a common goal. Because so many unpredictable events also come with unpredictable costs, having money saved can prepare you in the event of a financial setback.
To find the amount of money you would need for an emergency fund, total up the amount you spend monthly on essential expenses – like rent or mortgage payments, utilities, insurance payments, groceries, transportation, other bills, and anything that you must pay. If your expenses vary month-to-month, consider taking an average. It may also be a good idea to look at a recent bank statement to ensure you don’t overlook any necessary expenditures. Then, multiply that monthly amount by 3 or 6 to get your overall number.
If the amount you come up with sounds like too much to save, create your own goal – having even just a little money on hand will be helpful. Maybe you choose to save around two months’ worth of expenses – you get to build your emergency fund around your needs and preferences. You can also start small - even if you only set aside $10 weekly, you’d have a little over $500 in a year.
Remember, too, that if you must dip into your emergency fund – that is what it’s there for! Use what you need, then work to replenish the fund. Once you hit your goal, you can always set a new one to prepare yourself for future unplanned expenses.
There are many calculators available online to help you come up with your emergency fund goal – and you can always reach out to your financial advisor for assistance. An emergency fund is a worthwhile investment in your own financial independence.
*This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.
