The right emergency fund amount for you
How much should you have saved? Figure out your target number.
Look at what you spend
Most experts believe you should have enough money in your emergency fund to cover at least 3 to 6 months’ worth of living expenses.
What does that look like?
Start by estimating your costs for critical expenses, such as:
- Health care (including insurance)
- Personal expenses
You do not need to include expenses for anything you’d cut from your budget in the event of a job loss or major mishap.
- Dining out
- Non-essential shopping
- Savings for a second home, college, or other goals
Decide if you need to save more
Putting aside 3 to 6 months’ worth of expenses is a good rule of thumb, but sometimes it’s not enough.
If you are able, you might want to think about expanding your emergency savings.
Here are some scenarios where having more in your savings could benefit you:
- During a recession (when unemployment rates are higher and the length of unemployment is often longer)
- If you are in a high-risk industry (e.g. private firm, construction companies etc) where layoffs are common
- If your income is not steady
- If you are retired (and most of your money is in more-volatile stock and bond investments).
Something is better than nothing
Do not think you can save enough?
Do not panic.
You can build up to it by stashing away smaller amounts on a regular basis, like every week or every paycheck. As a student, you can set aside a portion of your upkeep money each time your parent or caregiver provides you with money.
If you keep it up, over time you will eventually meet your goal.
The important thing is not how much you save, but that you have started saving something.
For instance, let us assume you set aside #2,000 a week in an emergency fund. At the end of 2 years, you could have #208,000 saved. Increase that amount to $4000 a week and your savings could grow to $416,000.
Make it #6,000 a week and you will see an even larger amount saved – #624,000.
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