Are you worried about unexpected expenses? At one time or another, we have all been caught
with unplanned expenses, such as medical bills, car or home repairs, etc. The worst part is that
they tend to happen at the worst time.
How much emergency funds do I need? How can you design a successful Emergency funds plan?
You have come to the right place! We give you easy tips to start saving and relieve your finances
Let’s dive in!
Emergency funds are savings for unforeseen expenses, i.e., those not included in your monthly
bills, whether large, such as home repairs due to fire or storm damage, or minor, such as
replacing an appliance.
2. Why is it important to have savings for emergencies?
An emergency fund for unexpected expenses prevents your finances from being affected in the
long run. Otherwise, you will likely have to use your credit cards or apply for loans with very
high-interest rates, which are then difficult to pay. This can cause a financial crisis from which
you may be unable to recover.
3. How much emergency funds do I need?
While no specific amount works for everyone, financial experts suggest that you should have at
least two months of your salary saved, and the best way to deal with obstacles effectively is to
have a sum capable of covering 3 to 6 months of your daily expenses.
According to the Bureau of Statistics, people spend around $5,000 monthly, which implies
between $15,000 to $30,000 in emergency funds. Although this may seem a high amount, don’t
give up! The important thing is to develop a plan that fits your needs.
Let’s see how to do it!
4. How to build an emergency funds plan?
Calculate your monthly expenses.
First, you should determine how much you spend each month, including household expenses,
transportation, food, health, etc. Be as specific as you can.
Set your goal.
Once you have your monthly expenses (ME) list, multiply the sum you obtained by three. (ME
X 3= Initial goal) For example, let’s say your total monthly expenses are $4000; multiply that
sum by three and you get $12,000.
Set the time.
Here, you must define when you think you can save the money: one year, three years, five or
more. Be realistic with your expectations.
From there, you must calculate the amount you have obtained; let’s take the previous example,
$12,000, and divide it by the months you have set, for example, four years (48 months).
This way, you will know how much you will have to save each month for your emergency funds.
Getting down to work
At this point, you should start reducing your expenses and see what things you can save on; for
example, will you get a new car? Buy a smaller car, which implies not only a lower cost but also
a lower fuel consumption.
- Purchase a cheaper phone plan or get rid of some streaming services you have.
- Reduce outings and dinners in restaurants.
- If you receive any commission or bonus, you can save it.
Pro tip: consider the monthly amount of your emergency fund plan as an ordinary expense that
you must pay every month, with the same conviction as the rest.
5. Where do I keep my emergency funds?
The best thing to do is to create a savings account with interest or even invest in money market
funds. Keep in mind that the most important thing is to avoid being able to use the money easily
so that you are not tempted to use it for something else.
We hope this explanation has answered all your questions and that you can successfully
implement your emergency funds plan for 2024. Remember that having a reserve will help you
to face the obstacles on your way to financial freedom.
Don’t hesitate any longer and start your plan today!