How Much Do I Need to Save?
There is a lot of disagreement among financial experts on how much to save for emergencies. The answer also varies depending on a number of factors.
Dave Ramsey, an outspoken radio talk show and television show host who teaches a course called Financial Peace University, suggests on his website Dave Ramsey.com, that you should have a starter emergency fund of $1000.00. Ramsey suggests this serve as your emergency fund until you have paid off all of your high interest credit card debt, at which point you should begin building a full savings account for emergencies. While $1000 is a relatively small number to save for serious emergencies, it can certainly be a good starting point and can help you cope with those minor emergencies that crop up in day-to-day life.
Experts at Kiplinger.com suggest you have three to six months of living expenses saved in order to have a fully funded emergency fund. Living expenses include all those expenses required to sustain your day to day life such as food, mortgage payments, debt payments and any other payments that you absolutely must make each month.
If you are a freelancer, work in an unstable industry, are single or are the sole breadwinner for your family, you should err on the side of caution and aim to have at least six months of living expenses saved. Otherwise, anywhere between three and six months is appropriate.
This number will differ for everyone, but you should ensure you are realistic in determining what your actual monthly expenses are when you calculate the amount you plan on saving for emergencies. Track your actual expenses to determine how much you need to live on and then multiply that number by either three or six to determine how much you need.