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Imagine that you lose your job or something happens that requires you to take time off work. Would you be able to survive? Would all your bills be paid and would you still be able to put food on the table? For a large amount of the population the answer would be no. Very few people have any sort of savings, especially emergency savings, to help them in the event of a major change.
Why Do You Need Emergency Savings?
Saving up for a “rainy day”, if you will, should be a priority over any other type of savings. Life is unpredictable and you never know what changes might come along. You may lose your job. Or you may change jobs and end up having a few weeks in between paychecks. You might have a tragedy in the family or a change in your household that requires you to take time off of work like having a baby.
In the event that something comes along that causes you to be without pay for a period of time, an emergency savings account will save you. It will save you from stress and anxiety. You will be able to focus on the event in question rather than worrying about how you are going to live.
How Much Do You Need to Save?
Everyone is different, and has different needs, but the general rule of thumb is that you should save 6 months’ worth of expenses. This will allow you take about 6 months off of work before you run out of money. 6 months is usually enough time to deal with most major events that come up in your life. If you are in a career where paid work is more sporadic and there is a possibility you could go longer without pay, then you may want to aim for a year’s worth of expenses.
This is another reason you need a budget. A budget will show you what you spend monthly for all your major bills and expenses.
Tips for Emergency Savings Success
Saving up 6 months’ worth of expenses is hard. It won’t be done overnight. Most likely, it won’t be done in a year. It could take several years or more to get that kind of savings. It all depends on how much disposable income you have each month after deducting your expenses. Figure out what you can save each week and start setting it aside even if it is only $10.00. Every little bit helps.
Break It Down
Don’t aim for 6 months at the beginning. Aim for 1 month or a couple of weeks. Breaking it down into smaller chunks may make you feel like it is more doable and give you a sense of accomplishment. If you need $5,000 a month, that is $30,000 for 6 months. Focusing on just $5,000 to start with will, mentally, keep you focused and probably enable you to save more in a shorter period of time because it is easier to chip away at. If that doesn’t seem to work, focus on $1,000 at a time.
Make It Fun
Reward yourself in small ways for every $1,000 (or smaller) you save. One idea is to keep a chart that shows the savings broken into doable chunks and put a fun sticker next to each one as you complete it. It is amazing how much joy that little sticker will bring you and it kind of takes you back to the chore chart you may have had as a kid. There is a sense of accomplishment in putting that sticker on there. If that is not your think, treat yourself to a basic pedicure or some other pampering activity. Whatever you decide to reward yourself with, don’t end up destroying your emergency savings plan doing it.
For budgeting tips, see my Fab Life Budgeting System. It helps you break things down, not just monthly, but also weekly, giving you a better overall picture of your finances.