Life can be unpredictable, throwing such financial curveballs as needing a new transmission or suddenly being without a job. That’s why it’s so important to have a safety net, which can help pay for life’s unforeseen emergencies. If you don’t have one, you may be forced to borrow without a plan to pay it back, which can get you into trouble.
Traditionally, the recommendation for a good safety net was saving enough to two to six months of living expenses. However, given that today the average length of unemployment is 27 weeks, nine months is probably a better goal.
Rather than getting overwhelmed, start small. Put away enough to cover a month of expenses, then add to it as you’re able. Start by coming up with a budget that covers your monthly expenses. This will help you determine how much you’ll ultimately need to save, and let you find ways to come up with the funds.
Set an initial financial goal, then decide how long you want to take to save that amount. That will give you an idea of how much you need to put away each month. If you can, set up automatic deposits.
You should really contribute to your emergency fund even before saving for a vacation, investments, or your child’s education. Having this cushion will give you peace of mind that you’ll be able to handle whatever calamities life throws at you.
Put the money in a place where it can earn interest and be relatively accessible, while still remaining stable. Savings or money market accounts are good options.