Most people are aware that they should have an emergency savings fund available to cover unexpected expenses and expensive situations. However, you may be wondering how much money should be saved in this account. Each person is dealing with different lifestyle factors, professional circumstances and more. Therefore, there is not a flat answer to this question that applies to everyone. However, there are a few things that an emergency fund should be able to cover. As you determine your savings needs, focus your attention on these factors.
Your Insurance Deductibles
Various types of insurance are designed to mitigate many expenses related to significant situations. For example, health insurance may pay for many expenses if you are hospitalized for a few days or longer. Auto insurance may pay for accident-related expenses. However, for these and other types of coverage, you are responsible for your deductible. This deductible could be thousands of dollars or more for some policies. In order to ensure that you can afford to file a claim when needed, ensure that your savings account has enough cash on hand to cover all of your insurance deductibles.
Regular Monthly Expenses
People commonly dip into their savings account when they are dealing with the loss of a job. It may take several months or longer to find a new job in your field, and you may use money from savings to pay your regular bills during this time. Analyze your minimum monthly expenses, and focus on the job market in order to determine your financial comfort level in this areas.
Unexpected Situations
It is relatively easy to assign a fixed savings goal for these previous factors, but there are many other events that may occur that could leave you scrambling for cash. For example, you may be arrested and have to pay bail. Using bail bonds is an alternative, but this is not necessary if you have enough cash available in savings. Divorce, taking care of a sick relative and other similarly challenging situations can also result in financial hardship if you do not have a well-funded savings account.
You can see that an emergency savings fund may be essential when you are faced with many significant situations. However, this account needs to be well-funded in order to serve its full purpose when issues arise. Now is the time to set a realistic savings goal and to adjust your budget so that you regularly contribute money to your emergency savings account.
Brooke Chaplan is a freelance writer and blogger. She lives and works out of her home in Los Lunas, New Mexico. She loves the outdoors and spends most of her time hiking, biking, and gardening. For more information contact Brooke via Twitter @BrookeChaplan.