It’s always good to save for a rainy day. The question is, how much to have in an emergency reserve? Loss of job, illness, and unexpected expenses can all affect us at any given time. A good way to reduce the impact of these things is to have an emergency reserve built up. Most people don’t know how much to save for an emergency fund. Here is a breakdown of what you need to do and how much you need to save.
The first step to building up an emergency reserve is to find out what your monthly expenses are. Look at your last month of expenses and write them all down. Make sure you include everything you have spent money on, even if it was from cash on hand.
The second step is to analyze your expenses. Can any of them be cut out during this emergency? For example, if you lost your job you can reduce your monthly commuting expense since you won’t be commuting to and from work every day. Another example, is do you eat out a lot? If you have a loss of income you can cut out that expense. See if any of your other monthly expenses can be reduced for a time.
Now that you have taken out your unnecessary expenses, figure out you total again. This number is a more accurate representation of what you really need each month to survive. Remember, you just need to know what you need to survive with.
The next question people ask is how many months worth of expenses should I have? The experts say you should have three to six months of an emergency cash reserve. This should be easily accessible so you can get to it easily.
Now that you know what your monthly expenses are, make a plan to save up for those three to six months of reserves. Contribute something each month to this fund until you have what you need. Even if you can only do $100 a month you will be amazed at how quickly you can get your reserve built up.