A few weeks we shared the 8 Steps To Becoming More Financially Sound. Today, we’re jumping in feet first into the first step – building your emergency fund. It’s important to be prepared for a rainy day, to have a little stowed away for when you need it most.
People get confused with their savings. They think it’s for the trip out of town to see friends, extra money to spend around the holidays on gifts, or to hold you over until next payday because you went out to eat one too many times this month. But that’s not right.
You should have a savings account that is your emergency fund. Used only for emergencies. You can decided what an emergency is and set those limits on yourself. Maybe it’s when you wake up to find your refrigerator went out or you had an unexpected flat on the highway or maybe your youngest fell and broke their arm on the playground. Whatever it is you need to be prepared.
How much should you save in your emergency fund?
That’s a tough question. We recommend starting with $1,000 then start saving more. The end goal is to have 9-12 months of living expenses saved. The best way to figure that number is to add up all your necessities for the month: utilities, groceries, house payment, car payment, insurance costs, etc. and multiply it by 12 (or how many months). That’s your final number.
You should you have more than 12 months of expenses saved?
Every person and every family is different. No one is a like, which means their financial situations differ. You should really talk to your accountant or financial advisor before making this decision.
If you would like help coming up with your emergency fund savings plan, give us a call at 573-686-3053.