As the saying goes, life happens. Since it just happens and we have no control over emergencies, it’s super important that we’re financially prepared for them. This is why you should always work to have an Emergency Fund, just in case of emergencies.
Experts agree that everyone should have 3 – 6 months’ worth of expenses in their emergency fund. You can use this Emergency Fund Calculator to figure out how much you need to have saved up.
How to use the Emergency Fund Calculator
- Monthly rent or Mortgage: Here you enter what your monthly rent or mortgage payment is. Don’t include items like utilities. If it’s a mortgage, then include your escrow payment in there as well
- Monthly utility payments: These are your household utilities such as Water, Sewer, Gas, Trash, etc
- Monthly insurance payments: These include your health insurance, car insurance, and renters insurance if you have one. Highly recommended that you get one!
- Monthly transportation expenses: Here you enter everything that relates to your transportation needs. If you own a car, include your monthly car payment, gas, etc. If you use public transportation, include how much you spend on uber, trains, etc every month.
- Monthly debt payments: These are all your minimum monthly payments that you pay towards debt. These are credit cards, personal loans, etc.
- Other essential monthly expenses: If there are any other monthly expenses that don’t fit into any of the categories above, enter them here.
Once all your info has been entered, the calculator will automatically calculate how much you should have in your emergency fund. 6 months worth of your monthly expenses is the safest bet!
How about if you’re starting from scratch?
If you have absolutely nothing saved or very little in your emergency fund, that’s okay too. Everybody starts from $0 but with patience and consistency, you can also build up your emergency fund.
3 to 6 months saved up adds up to be quite a lot of money for most. Using me as an example, I need about $12,800 saved up in my emergency fund to cover 6 months of expenses. When I started at $0, this seems like an impossible task. But just like a marathon, it only takes the first step to get started.
What I recommend doing is to break up your emergency fund savings goals to $1,000 chunks. Your first Target should be to save up $1,000 in your emergency fund. Once you’ve saved up $1,000, then your next Target is having $2,000. Month after month, year after year, you’ll always be changing that goal until you reach your 3 to 6 months off expenses saved up.
Remember, slow and steady wins the race 🙂
Where to stash your emergency fund
Let’s get one thing out of the way. Don’t store your emergency fund in cash. Because of depreciation, storing this money in plain cash means that loses value over time. You don’t want that. Instead, opt to save it into high-yield savings accounts or invest it into easy to access bonds.
For saving your money in a high-yield savings account, don’t use traditional banks. These Banks typically have very low-interest rates. Instead, use services like the Robinhood high-yield savings account or Betterment’s high-yield cash reserves.
If you’re interested instead in Saving your money in safe bonds, then consider using Betterment. I personally save my emergency fund in this type of account. All accounts are FDIC-insured so you can rest easy knowing that your money is safe.
Automate your saving
Do you know what the most effective way of saving is? It’s when you don’t have to think about it and it’s automatic. Automating your saving is hands-down the best way you can get started saving if you haven’t already.
If you have to consciously move money around between savings accounts or investing it every time you got paid, it’s easy to forget or not to do it at all. If you instead set up automatic deposits into your emergency fund bucket, such as Betterment, then you set it and forget it. Your money is saved every single month without you having to do anything.
In no time, you’ll learn to live without that 50 or $100 monthly deposit. With the magic of high-yield interest, your money starts working for you. You can save up a lot of money using this method.
I’ve written an article explaining how you can automate your finances and make your financial life that much easier and more rewarding. Definitely check it out.
Use apps to help you save
Here is a bonus to for you. Instead of just saving a portion of your paycheck oh, you can accelerate accelerate saving by using different apps that help you save more money.
I personally recommend using the app Acorns, especially if you’re a beginner. Acorns rounds up your everyday purchases to the nearest dollar and invest your change. So if you bought something for $5.50, Acorns takes $0.50 and invests it for you automatically. A super useful tool and promotes saving money! Definitely check it out.
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