You've probably heard about the importance of having an emergency savings fund at some point in your life.
There may be a time where you have a true emergency. Whether it's an unexpected medical expense, an emergency home repair, or another urgent personal crisis, having money set aside in the bank can make the situation less stressful. Some people suggest having $1,000 in emergency savings, but is that enough? Find out if your emergency savings fund is good to go or if you should continue building it.
What kind of emergencies can come up?
Many unexpected emergencies can arise—often when you least expect them. Life has a way of throwing twists and turns at everyone, so you never know when something might happen. Here are some unexpected emergencies that could come up and cost you money:
- Home repairs (like roof problems, flooding, or burst pipes)
- Car repairs
- Dental emergencies
- Medical emergencies
- Vet bills
- Job loss or a significant pay cut
- An unexpected tax bill
Having an emergency savings fund can come in handy in these situations. Instead of having to max out a credit card or ask friends or family to borrow money, you'll have the cash you need ready to go. You'll also feel more confident if you have extra money set aside for these situations.
Is $1,000 enough money in an emergency?
While having $1,000 in an emergency fund is a great starting point, it's likely not enough. Once you have that much set aside, you'll want to continue saving. To think about the actual cost of an emergency, here are some questions to ask yourself:
- How much is your mortgage or rent?
- How much do you spend on living expenses every month?
- What is your car insurance deductible?
- What was the total for your last big car repair bill?
- Does your health coverage result in costly medical bills?
Understanding the actual costs of emergencies can help you decide how much money you might need for a costly unexpected situation.
Set aside three to six months' worth of living expenses
If you want to play it safe, save more than that $1,000. Having at least three to six months' worth of living expenses set aside is a good bet. That way, if you were to lose your job, experience a wage cut, or have another emergency, you'd be able to continue paying your bills in the near term. If you don't have this much money set aside, you may be forced to go into credit card debt or face other financial consequences.
If your emergency fund balance is currently coming up short, it's never too late to add to it. You can start small. Commit to a certain dollar amount per month or per paycheck. You can even automate your savings (automatically move money from checking to savings each month) so you don't forget. For example, say you could afford to add $250 a month to your emergency fund. If you automate your savings for a year, you'd have $3,000 put away for emergencies.
When saving, make sure you set your funds aside in a separate savings account so you don't spend it. Opening a high-yield savings account will offer you the chance to earn more interest on your money. And by taking the time to plan and save now, you could make an unexpected situation in the future a lot less upsetting.