You know that you should have some savings set aside for emergencies. But how much should you have set aside? Do you have enough right now? Read ahead to find out how much you need and how you can give your fund a big boost.
How Much Should You Have in Your Emergency Fund?
The answer is: “It depends.” If you’re only intending to use it for surprise expenses, like plumbing trouble and furnace repairs, then you should aspire to have $1000 to $3000 set aside in a savings account. These emergency savings should help you cover small to moderate problems without disrupting your monthly budget.
If you’re hoping to protect yourself from bigger problems, like losing your job, then you should aspire to have been three to six months’ worth of income stashed away in a savings account. This can help you supplement any loss of income for several months and keep you financially afloat while you take on a recovery plan. Consider how emergency savings helped households manage everyday expenses throughout the pandemic. This amount of savings may sound too high until you’re in a situation when you need to rely on it.
Some other factors should determine the size of your savings goals, like whether this is a household fund or a personal fund and whether you have other safety nets in place (for example, insurance).
What If You Don’t Have Enough?
You might not have enough to cover an emergency with the savings in your fund. So, what can you do if something goes wrong? If you are far from your credit limit, you could put the expense on your credit card or personal line of credit. Another alternative is that you could apply online for a personal loan and use the borrowed funds to help you manage the costs. You could resolve the emergency quickly and then manage the repayments later on.
How Can You Boost Your Savings?
You don’t want to be vulnerable to any emergencies, so you should fill up your fund as quickly as possible. You can accomplish this in two ways: you can increase your income, or you can shrink your budgetary expenses to boost your savings in a short amount of time.
How can you increase your income? You could take on a second job or a side-hustle. You could ask your boss for a raise. Or you could sell second-hand items online and then put all of the profits into the emergency fund.
How can you shrink your budgetary expenses? Here are some options that you could try:
- Use coupons, discount codes and cash-back apps when shopping in person
- Use browser extensions and coupon apps when shopping online
- Cancel unnecessary subscriptions and memberships
- Order less takeout and restaurant food
- Prepare coffee at home
- Call creditors to negotiate the cost of services
- Workout at home instead of at a gym or studio
- Walk or take public transit instead of calling a taxi or rideshare service
- Pay all of your bills on time to avoid late fees
Make sure that you have enough money sitting in your emergency fund. That way, when something goes wrong, you’ll be confident that you can handle it.