If 2020 taught us anything, it was to maintain an emergency fund, ready for when we need it most. An emergency fund is an amount of money set aside to cover unforeseen expenses, or, the extra money that is set back to cover basic expenses when there are drastic changes to your income. Emergency funds can be used for small emergencies or extreme emergencies. How much a person needs in an emergency fund is unique and varies based on personal circumstances. Common reasons that people utilize an emergency fund would be for a kitchen appliance going out, fixing or replacing a furnace, car repairs, medical expenses, or covering bills after a job loss.
“Since the pandemic began, 14% of Americans wiped out their emergency savings. That would amount to as many as 46 million people.” (CNBC.com)
Those without savings had to look for other options “like borrowing money to cover everyday expenses (11%), stopping contributions to their 401(k) plan or other retirement accounts (6%), or asking for rent relief or a delay (5%).” (CNBC.com)
Emergency funds help ease a stressful time when dealing with financial blows. Not only will it help you sustain financially, in the long run, but it will help mentally as well. Experts typically suggest having enough cash in an emergency fund for at least three to six months’ worth of living expenses. Some people prefer more, some. If the idea of setting back that much is overwhelming, start small by setting stepping stone goals such as $100 or $500.
To calculate what an adequate amount of savings is for an emergency fund, you need to start by looking at your essential bills such as your mortgage, car payments, and utilities. Next, determine how much you need for other essentials such as food, personal hygiene items, and other items. Forget the non-essentials and focus on making it through the most important items on your list.
If you don’t have an emergency fund already started, it’s important to take the time to prioritize. It’s also important to re-evaluate your emergency fund if you’ve recently had to dip into it. To help, our Banzai program will help coach you through while you ‘Build Your Emergency Fund’. Start here.
SOURCE: CNBC.com
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