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How much money should I have set aside for emergencies?
It is important to have a fund set up to handle the unexpected—such as major home repairs (e.g., replacing a roof), car repairs and appliance replacements. Of course, the most important reason to have an emergency fund is to handle the loss of a job—or your inability to work due to illness.
Financial advisors generally recommend that you have the dollar equivalent of three to six months of monthly expenses set aside for emergencies. That may seem like a lot of money to have set aside, so here are a few steps that will help you until you can reach that goal:
- Start saving regularly so that you will have three months of housing expenses in reserve (enough to pay your rent or mortgage for at least three months).
- Once you’ve reached that goal, continue saving until you have additional dollars set aside to cover three months of regular expenses—such as car payments, heating costs, life insurance, etc.
- Finally, once you’ve completed steps 1 and 2, keep going until you have three to six months’ worth of paychecks (yours and your spouse’s or partner’s, if applicable) in savings.
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