How to Build Your Emergency Fund

Experts say's one should having three to six months’ worth of expenses available for emergencies. That’s a pretty wide range; knowing which end of the range to target depends on several factors. 

Saving three to four months’ worth of expenses might be enough if:

• You’re relatively healthy
• You don’t have much debt
• You live in a low cost-of-living area
• You rent and your car (if you have one) is reliable
• You could easily find a job if you lose your current one
• You don’t have kids or dependents (including furry ones) relying on your income
• Your job is very stable
• You have a partner or other family you can rely on for financial assistance

Saving closer to six months’ worth of expenses is recommended if:

• You live in a high cost-of-living area
• It’d be hard for you to find a job if you lose your current one
• You own your own home (especially if you have an older home)
• Your job isn’t very stable (you’re a seasonal worker, gig worker, or an artist)
• You have children, a stay-at-home spouse, pets, and/or other dependents you support
• You have a medical condition, or do high-risk activities (like rock climbing or BASE jumping)
• You lack a financial support network

 Saving a year’s worth of living expenses is ideal if:

• You have a high income
• You have a niche position or specialized job that might require relocation or take extra time to replace
• You are the sole provider to multiple dependents
• You are retired or are nearing retirement

A lot of people will be a blend of these. But if you see more potential for risks in your life, consider saving more versus less.

How to Build Your Emergency Fund

Calculate how much your emergency fund should have and take steps to fund it.

1. Set a savings goal: Determine how many months of expenses to save, between three and six months, based on your personal circumstances and risk factors. 
2. Calculate one month’s worth of expenses: When calculating expenses, only tally up things you’d still pay for in an emergency, like rent, groceries, and bills. Leave out optional expenditures like travel and dinners out.
3. Calculate the amount of your savings goal: Multiply your monthly expenses by the number of months you want to save. For example, if you want to save four months’ expenses and one month’s expenses are 20000 your target is an 80000 emergency fund (20000 x 4). 
4. Automate your savings: If you automate your savings, you’re more likely to succeed. Decide how much you can afford to save each month, then set up automatic deposits into your savings account from your checking account after you get paid.
5. Capitalize on savings opportunities: If you come across other money, such as a tax refund, side hustle income deposit it in your emergency fund to reach your goal sooner.

Don’t get flustered if your goal seems difficult to reach. Just remember that you don’t need it all immediately, or even next year. It’s better to think of your emergency savings fund as an ongoing process, like your retirement savings account. Then, once you do reach it, you’ll have extra money each month to put toward other goals.

 

Disclaimer:

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