Should you start an emergency fund? And if you do, how much should you put in an emergency fund?
Use our easy emergency fund calculator below to find out.
You should start an emergency savings account today. The amount you save depends on the individual, that’s why you should use the calculator below.
Emergency funds, by their nature, are unpredictable. When they occur they can derail your financial plans and budget.
A sudden illness or accident, unexpected loss of job or a surprise home or car repair can devastate your financials and cash flow if you are not prepared.
So it is important you are prepared for anything that may arise.
An emergency fund keeps your head above water when you face an unexpected expense, but its most important purpose is to give you a cushion if you lose your source of income.
It is another form of saving your money.
You should have an emergency savings of two weeks’ pay or $1,000, whichever is greater.
This will help you pay for a minor unexpected expense such as a car repair, broken appliance or veterinary emergency—without needing to go into debt.
I always advocate that you have a savings account completely different from your emergency fund.
Emergency account is for emergencies and job loss situations; while your actual savings account will be for investments.
Eventually, however, you’ll need an emergency savings that will see you through the worst possible situation—the loss of your job.
Use our emergency savings calculator find out how much you’ll need:
Emergency fund calculator
There’s no right amount as to the amount of money you need in your emergency savings, and that’s why you will need to do your calculations using the calculator above.
The amount you eventually put in your emergency savings will depend on all the factors in the calculator and will change from time to time depending on your income and expenses.
If you’re not sure of how to start an emergency fund it, Go to our post on how to start an emergency fund.
Where should you put the money?
Emergency savings are best placed in an interest-earning bank account, such as a money market or interest-earning savings account that can be accessed easily without taxes or penalties.
The concern with placing your emergency savings in mutual funds, stocks or other assets is that they may lose value if the funds need to be accessed quickly.
When should you use this money?
The goal is to tap your emergency savings only for expenses directly related to an unexpected emergency.
By setting a specific amount that should be in that account, you will know how much to build up to; when you draw from the emergency savings, you’ll then know how much to contribute in order to replenish the account.
And when you do have to take money from this fund, it’s important to immediately start rebuilding it.
Finally, when should you start saving?
Now, If you start saving now, the money can go a long way towards meeting your needs when an emergency occurs.
Manage Your Money Better
Below are some personal finance books I recommend to help you save more money. They have helped me a lot and I'm sure they'll help you in your journey to financial freedom.
- The Compound Effect by Darren Hardy
- Total Money Makeover by Dave Ramsey
- I Will Teach You to Be Rich by Ramit Sethi
- Master Your Money (Super Bundle)
- Need an extra $2,500? Get loans up to $5000
- Are you in debt? Get free debt consultation and find a solution to your debt
- Unshakable: Your financial freedom blueprint
- The New Money Masters
- Tools to make money in tough economic times
I have read about 5 out of the 7 books and I can boldly say they have helped me handle my finances better. I believe in them because they have helped me in my financial journey and I think they’ll help you too.