Emergency Savings: How Much Do You Need?

Emergency Savings: How Much Do You Need?

You never know when disaster might strike — getting laid off, an accident or major issues with your vehicle. Any one of these, and a myriad of other things, can happen and put you in a bind financially.

The best protection against all of this is to make sure you have a nice little nest egg saved up for just such an emergency. How much is enough though? This could vary, but at a bare minimum I’d say $3,000 to $4,000 is a must. It was the “rule of thumb” to have three to six months living expenses saved up. According to an article in the LA Times, living expenses generally amount to about half of your gross income, because the other half of what you earn usually gets eaten up in taxes, discretionary spending and savings. But some people could use substantially more, others substantially less.

I know it isn’t easy to save; many times we all splurge on a weekend retreat, fancy night out on the town or gift for that special someone. But we have to when we can or it could get very bad for you. A few years ago my car’s transmission went and I couldn’t see putting the money into a 10-year-old car. Fortunately, I had $4,000 saved up so I was able to purchase a newer used car.

If you are able to set $40 a week ($80 a paycheck if you get paid bi-weekly), you’d be able to save $2,080 a year. It doesn’t seem like much, but if you look at your monthly expenses there is probably a few things you can cut back on or cut out completely. Ideally, you would be able to save a few hundred a month, but saving is saving.

If you get some money back from your tax returns, either pay off your debt or set it aside in your emergency fund. It’s not easy getting money back and not spending it on yourself, because you deserve something nice; rather do yourself a favor and stash it away.