There’s a general rule of thumb when establishing an emergency savings fund: the size of your fund should be equal to at least three months’ worth of your living expenses. Take note that it’s three months’ expenses, not three months of your pay. If it’s possible for you to put aside more than three months’ worth of expenses then you should make it a point to prepare for a time that you may be without a job/monthly income. It is important to prepare for more than three months, if possible, because the economy has changed and job layoffs have become more prevalent, and the time it takes to find another job is getting longer and longer.
The first step to take when setting up an emergency fund is to determine just how much it is you spend every month to live. Let’s say you bring home $3,000 per month and after all your bills are paid you have spent your entire paycheck; sounds like you spend $3,000 a month, right? Nope, you are actually spending much more than $3,000 a month. This is why many people will get themselves into a significant amount of credit card debt or take out a personal loan.
The easiest way to figure out how much money you are spending each month is by carrying a planner or even a piece of paper to record your transactions. This includes all checks, credit card charges, all ATM withdrawal slips, and cash advances. Spend one month recording your purchases and the amount of money you are spending each day. Then break the expenses down into categories and take a look at how you are spending your money every month. It will be a lot easier to figure out how you can save money once you understand where it is going.
Many financial advisors suggest that if you find it difficult to save money, especially three months or more worth of expenses, you should save every cent possible and put it into a money market account. It all comes down to making a decision that could really help in the long run if you lose your job or get sick.
Think twice before purchasing that coffee from Starbucks or going to the movies twice a week. Doing what is right for you , including making sure you’ll have what you need in any situation, may mean giving up those wants that we all cave into every once in awhile. Just keep in mind that this can and will help you in the future if an unforeseen emergency may occur.
If you have questions regarding setting up an emergency fund please feel free to contact SafeGuard’s education department at 1-800-673-6993 ext. 154.