In a volatile job market, we’ve seen furloughs, layoffs, and terminations of employees where companies suffered budget cuts and lack of funding resources. Most of these issues were due to the COVID-19 pandemic which put a lot of brick and mortar employees out of work due to the quarantine mandates. These times are ideally when the emergency funds would kick in.
What should you consider when starting an emergency fund?
The most obvious issue to start with is your living expenses, this includes your rent or mortgage, food, electricity, and other bills that require you to live as a functioning human being. If you’re paying off debt, it’s important to also factor in the monthly recommended payment in the case that you hit a financial wall. Other scenarios would include:
- Medical bills
- Veterinarian bills (if you have a pet)
- Immediate repairs for your car or property.
How much should I save for an emergency fund?
The answer to this varies from person to person, some would say three to six months of your monthly expenses, while others would say an entire year. The number that you should start with is ideally the one that you are comfortable with (three months seems to be a good starting ground).
The more savings you accrue for this emergency fund, the more time you will have in tackling your financial challenge if an emergency event occurs such as losing your job.
What should I do if I reached my emergency fund goal?
Building an emergency fund provides a financial cushion in the case that an unfortunate event happens where you lose a consistent source of income. Once you’ve reached your emergency fund goal it’s important to adjust that number accordingly due to economic factors such as inflation. Some helpful suggestions that may help you budget for an emergency fund could be to utilize the fifty-thirty-twenty rule, more details on the guideline can be found here.