Investing
May 7, 2018

What’s the Emergency Fund Sweet Spot For Your Budget?

Simple. Thrifty. Living.

Building an emergency fund is an essential part of financial stability. Without an emergency fund, you may have to use high-interest credit cards to pay for things like car repairs and medical services.

Most people in the United States don’t save nearly enough money. It is possible, though, for households to put too much money into their emergency funds. Instead of over-funding or under-funding your account, follow these three tips to find the sweet spot for your budget.

Ideally, your emergency fund will have enough money to pay for at six months of expenses. If that sounds impossible to you, then aim for three months. If you can’t afford to pay your mortgage, bills and other necessities for at least three months, then sudden unemployment will cause serious financial problems for your family.

Note that your emergency fund needs to equal three months of expenses. That doesn’t mean you need to save three months of your income.

Review your expenses carefully to determine how much cash you need to get by without earning any money.

It’s unlikely that you have enough money sitting around to fully fund an emergency account today. That’s fine as long as you make a plan and start saving.

Start small and slowly build your savings. If you can afford to put $500 into a savings account today, then do that. If you can only afford $50, then do that, instead. Continue contributing money to the account until you reach the amount that you need.

It’s best to set a weekly or monthly goal. Without a defined goal, you’ll find yourself tempted to spend money instead of saving it.

Once you reach your goal of three or six months of expenses, you can stop putting money into your emergency fund. At that point, you probably have more than enough cash to survive unemployment or surprise expenses.

Just because you’ve reached your goal, though, doesn’t mean that you can start spending money freely. Now is the time to divert your contribution from savings to investments. Investing wisely will grow your wealth over decades, which will make it easier for you to afford major purchases and retire when you want. You can even start investing online. Research which online investing sites are the best and you can get started growing your money.

If you don’t have any money in an emergency fund, start one today. Even if you only have a few dollars available, it’s better than nothing. Eventually, you’ll find the sweet spot for your family.

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