We’ve already explained the many reasons why you need an emergency fund, even if you think you don’t need an emergency fund.
Too many situations can arise where you’ll find yourself in need of some serious cash. Losing a job, medical emergencies, an unexpected family emergency.
You may think you are secure but when that unexpected event happens, you’ll be really glad you managed to have an extra stash of dough to rely on.
So how much should you save in an emergency fund?
Well, it depends.
What may be good enough for someone who is renting a home may not be enough for someone with a mortgage.
A couple with no kids could most likely get by with less.
Here are a few ideas as to how much you should be saving in an emergency fund based on your own personal circumstances.
The $1,000 Emergency Fund
If you’re stuck with mountains of debt, you’re most likely working on paying that off. According to Dave Ramsey, you should really try and have at least $1,000 in an emergency fund in order to cover any small, unexpected expenses.
A $1,000 emergency fund would enough to cover your car getting towed, your car insurance deductible, an unexpected trip due to a death in the family.
Basically, having a small emergency fund will allow you some peace of mind when you get that speeding ticket.
The 3-6 months’ expenses Emergency Fund
Once you’ve paid off your debt, it’s not time to go on that European vacation you’ve been dreaming of. In fact, it’s time to start saving for your emergency fund!
Instead of spending all that money that you were once throwing toward debt, you should now be putting that money toward savings.
Ideally, you should have at least three months’ worth of bare minimum expenses saved up, and preferably you should have six months’ worth of expenses in a savings account.
The reason is that if you lose your job and you need to find a new one, you will have between three and six months’ worth of expenses to tide you over.
The “Other” Emergency Fund
If you have children, you’ll most likely want to have an even more stable financial safety net. If you have a mortgage, you’ll most likely want to ensure everything you can so that you won’t ever lose your house.
Remember, when it comes to finances, it’s personal. Only you know what’s best for your situation. When it comes to emergency funds, the rule of thumb generally is save as much as you can. Hope for the best and prepare for the worst.