Life happens and then you’re hit with an unexpected expense that can leave you thinking “I really wish I saw that one coming.” Many people today are living paycheck to paycheck, but what happens when your car breaks down, your HVAC unit malfunctions, or you experience paying for unforeseen health care costs? Shocking studies reveal only 40% of Americans could pay an unexpected $1,000 expense.
A general advice for everyone–have an emergency fund in place and expect the unexpected. But the question is: how much is enough?
Financial experts suggest saving three to six months’ worth of living expenses.
Well, if your emergency fund is non-existent and you’re starting from the beginning, consider saving any amount that you can–whether it's $100, $50, or even $25 a month to where it can cover at least one month’s accumulated worth of expenses. Remember, every dollar counts!
Now that you’ve started somewhere, you'll want to assess your current living situation and lifestyle, and then look further into the future by accelerating these savings goals. First, add up your basic monthly living costs such as:
- Food (including eating out expenses)
- Cell Phone
- Utilities (Water, Electricity, Cable/TV, Internet, etc.)
- Vanity (Clothing)
- Insurance (Health, Car, etc.)
- Leisure (Memberships and Outings)
- Other Bills (Credit Cards, Loans, etc.)
- Contributions (Retirement Savings, Vacation Fund, Donations, etc.)
Next, total up the amount and then multiple it by three and six to see how much you’d need to cover three-six months’ worth of expenses. Is the number something you wish to blur out?
We’re inundated with so many things and obstacles on the daily that we don’t realize how much we spend each day, each month. But if you’re willing to make some cuts, you could easily bring that amount down to a more attainable number that’s easier on the eyes. Consider cutting down how much you eat out, eliminate unnecessary shopping sprees and memberships, and even reevaluate and compare utility providers. Every cut you make adds up and makes your lifestyle more affordable and easier to recover from financial curveballs.
Having an emergency fund in place is one of the pillars of a healthy financial foundation. Money is the last thing you want to think about when you’re hit with an unanticipated crisis that can upend your life. As financial professionals, we’re here to help you pursue your financial goals, especially in a path of uncertainties. If you have any questions or would like to learn more on savings strategies, contact us today! Let us help you move forward with confidence.
Jason A. Stoede
Investment Advisor Representative
Clarus Wealth Management