If there is one thing we have realized in 2020, it’s that nothing is guaranteed. Nothing has gone to plan. Weddings cancelled, graduations cancelled, even things that seem “uncancelable” like March Madness were cancelled. There really isn’t anyway to know what can go wrong, we just know that unexpected things happen all the time.
Bad things almost always come in waves. The important thing is to have a financial life preserver, in the form of an emergency cash fund.
Although many people agree that an emergency fund is important, they’re not sure how much to save or where to keep the money. Others wonder how they can find any extra cash to sock away.
When starting an emergency fund, you’ll want to set a target amount. Unfortunately, there is no “one-size-fits-all” answer. The ideal amount for your emergency fund may depend on your financial situation and lifestyle. For example, if you own your home or provide for dependents, you may be more likely to face financial emergencies. If you lose your job, you need to consider how long it would take you to find new employment.
If saving several months of expenses seems like an unreasonable goal, start with a more modest target of saving $1,000. Build your savings at regular intervals, a bit at a time. It may help to treat the transaction like a bill you pay each month. Consider setting up an automatic monthly transfer to make self-discipline a matter of course.
Once you see your savings begin to build, you may be tempted to use the account for something other than an emergency. Try to budget and prepare separately for bigger expenses you know are coming. Keep your emergency money separate from your checking account so that it’s harder to access.
The only thing you can know about unexpected expenses is that they’re coming – for everyone. But having an emergency fund may help alleviate the stress and worry associated with a financial crisis. If your emergency savings are not where they should be, consider taking steps today to create a cushion for the future. If you need help figuring out an amount that is adequate for you, reach out to a financial professional.