Life happens — and you’ll want to be prepared financially when it does. But how much do you need in your emergency savings fund?
In today’s episode of Your Money Minute with Tracy Stewart, CPA, I want to talk about how to decide an amount to stash in your emergency savings fund. Some people balk at the idea of sticking funds in a low-interest savings account, but my thought is — if it’s an emergency, don’t you want to get at that cash quickly? Liquidity is key with your emergency funds.
For the typical individual, the general rule of thumb is to save three to six months of living expenses in an emergency savings fund. This should be your top priority — if you don’t have a fully-funded emergency savings account already. You never know when you’re going to need it…
I have lots of great videos on how to take inventory of your actual and anticipated monthly expenses for budgeting. Make sure that you have a realistic picture as to how much you’ll need if you were to lose your job tomorrow.
One other consideration when you start to stow away money in your emergency savings account: Consider your medical history and whether or not you’re at a higher risk to have medical needs along the way. You’ll absolutely want to include this in your budget — and possibly even save a bit more because of this.
Also: If you’re self-employed, a contractor or work in a highly-specialized or niche field, it’s advisable that you save even more than the standard three to six months of expenses. Work may come and go, and you’ll want to have a solid plan if this were to happen.
Financial independence is unbelievably liberating. By being mindful of your money and preparing for emergencies, you set yourself up to succeed — even when the going gets tough.
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