YOUR EMERGENCY FUND SAVES YOU!

Many of us have certainly heard the saying, “save for a rainy day”, but what does that even mean?

To be honest, I don’t believe our family members who may have mentioned this even knew what it meant, so they never elaborated any further, so here’s the tea!

Your “rainy day” can be considered as anything related to job loss, a medical emergency, a family emergency, unexpected repairs, car accident and more. This is why having an emergency fund is a critical step in your financial journey and it should be prioritized because life happens.

However, all emergency funds are not created equal. Meaning, my emergency fund and your emergency fund will never be the same.

Here’s how to assess how to calculate your emergency fund:

1.    The recommended amount for an emergency fund is three (3) to six (6) months of your monthly expenses. But don’t let this intimidate you. If you are struggling with your emergency fund, start with saving your FIRST $500, $1,000 and continue saving towards your first month of monthly expenses. Your emergency fund goal should be split up based on those mini milestones to keep you motivated!

2.    You can consider calculating your emergency fund number by first identifying what you currently pay for your BASIC monthly expenses such as housing (rent/mortgage), utilities (electricity, water), transportation costs (gas, tolls, rideshare, bus, train), insurance, food, household items, internet, phone and more. Create a list of your essential expenses. 

 If 1 month = $2K 

Then 3 months = $6K

Example: For your first $1K, if you saved $200 every month, it would take you 5 months 

3.    The other option you can consider when calculating your emergency fund number is to calculate ALL of your current monthly expenses, including nonessential expenses such as for entertainment, beauty, subscriptions, clothing, travel etc.

If 1 month = $2.5K

Then 3 months = $7.5K

This fund should also be SEPARATED from any other accounts. Consider a bank account with a high savings interest rate to maximize your savings.

Other things to consider when calculating your emergency fund number:

·      Your family obligations (ex: individuals with children may need to consider factoring in childcare costs)

·      Health insurance costs (in the event of job loss)

·      How easily you can access the funds from your emergency fund

Your emergency fund can absolutely save you! It’s better to have at least a head start with some money, than no money at all.