No matter how much we earn, and how well we manage our monthly outgoings, all of these can suddenly be ruined with one unfortunate life event. Perhaps you got laid off from work, got ill, or worse, got into a disabling accident. While these are things we do not have any control over, what we can control is setting up an emergency fund to give us a cushion when urgent needs arise.
As the name suggests, an emergency fund is a money source meant to be spent on your emergency expenses. It is recommended that all of us save up in a separate account of emergency funds to be used on rainy days.
So how much money should you put on your emergency fund? Ideally, and as many financial gurus will say, you need to save about six to nine months of your basic living expenses. If the time comes that you suddenly lost your job or become incapable of earning income for yourself, you’ll have something to live on for at least a few months. This can prevent or lessen the need to borrow money to save you from this financial disaster.
Of course, if you’re struggling, you can start with three months worth of expenses, and slowly work your way up. Of course, you don’t need to stop when you reach nine months, because you can always build this fund as much as you like.
Right now, don’t stress too much about how much you’re going to put into your rainy day fund. What matters is that you get started and remember to only use the money in real emergencies.