Dear Olga,
How much emergency savings is enough?
Thank you,
Stressed About Money
Dear Stressed About Money,
A Bankrate survey conducted in January 2019 found that only 40% of Americans have enough in their savings to cover a $1,000 emergency expense. Acknowledging you need to work on this with the money in your life is setting you on the path to figuring this out.
First, you'll need to figure out what sort of savings are feasible for you to put aside every month. If you've never created a budget before, here's a "Dear Olga" article that outlines how to create a budget step-by-step. If starting a spreadsheet from scratch is too daunting, I also have free templates you can download here.
When you know how much you can comfortably put aside for savings, you can begin to start working towards your savings. Start today, regardless of what your savings goal will be because having some money in that emergency fund is better than having $0.
To figure out what emergency savings goal you'll need to work towards will be based on your needs and what a worst-case scenario would look like.
Let's imagine you lost your main source of income. Here are some questions to consider:
What are my fixed expenses? Think rent/mortgage, utilities, food, anything that keeps the basics afloat
How long would it take me to find a job? I've read statistics that say that for every $10,000 you want to make, that's equivalent to about a month of job searching. So if you want to make $80K, that's roughly 8 months. There are also other factors to consider like the demand for your experience in the and any seasonal demands if your industry has a slow period.
Remember this is just a starting point, you can start at working towards 3 months and then work towards 6 months. Then reassess your goals and how emergency savings into your life.
Instead of trying to save your goal amount in the next 6 months or a year, focusing on making progress with what makes sense today and without breaking your bank, will give you the confidence that you can save. That peace of mind is priceless.
If you'd like more guidance on emergency savings, I would be happy to have a quick call with you, here's a link to my calendar 🗓
You can also find more tips on savings and more in my ebook "Shmoney Guide: Making Money Choices Doesn't Need to Be So Scary," check it out on Amazon, iBooks, Nook, Kobo, or Lulu.
Good luck!
Olga