When life throws you a curveball, it’s nice to know the answer to how much money should I have in an emergency fund. The answer is six months of expenses.
One of the most stressful things in life is not having enough money on hand when life throws you a curveball. Unfortunately, many of us have been down that road. But it doesn’t have to be that way. And the easiest way to weather that financial storm is to set aside six months of expenses. If you’re finding it hard to set aside that much money, let’s just discuss several ways your life will improve when you do save up six months-worth of expenses.
You Can Do It
I realize six months of expenses sounds like a lot of money. Just take it one step at a time and you’ll be there before you know it. And it’s so worth the time and effort! Trust me, the last thought you want running through your head as you’re staring down an expensive situation is: how much money should I have in an emergency fund?
Read on to learn just some of the many ways your life will improve once you’ve saved up six months of expenses.
An Emergency Fund Gives You Peace of Mind
Imagine the peace of mind you’ll have when you finally have six months of expenses set aside. You won’t be living from paycheck to paycheck anymore. Unfortunately, that’s something many people do. But it just doesn’t have to be that way.
Your stress level will go down so much when you realize you’ll be able to easily cover any one of those unexpected expenses that come your way. You know, your car has an issue, and it just makes sense to fix it rather than replace it. Or your dog gets bitten by a venomous snake and you have to take it to the emergency vet. Or one of the kids gets into a bit of a car accident, and you have to come up with that deductible you thought you’d never have to use. And the list goes on and on.
The point is, when you have set aside six full months of expenses, you’ll be able to weather the storm with no problem. And that will be a HUGE stress relief. And let’s be honest here. We’re a heck of a lot better to be around when we’re relaxed rather than when we’re stressed out. Your spouse or partner will enjoy hour company more, you’ll have time to actually listen to the kids, and you’ll probably be able to focus better at work.
All those reasons, and more, make it well worth your while to set aside six months of expenses.
An Emergency Fund Gives You Career Flexibility
When life throws you a curveball, it’s nice to know the answer to how much money should I have in an emergency fund. And if a curveball is every going to be thrown at you, your job just might be where it happens.
There are two types of career changes: those we choose and those that are forced upon us.
Career Change We Choose
How many times have you wanted to try something new, but just couldn’t because you didn’t have the money set aside to cover the gap in employment due to a career change? Probably more than once. So, start setting aside some of your income so you’ll have six months of expenses saved up.
And once you’ve done that, take some time to really sit down and think about your career. Do some more networking. Is there some other career path you’d rather be on? And if so, you’ll be able to financially make the transition because you were smart enough and disciplined enough to set aside six months of expenses.
And that’s a huge benefit to having six months of expenses saved up. Unfortunately, many people feel stuck doing a job they don’t like at all. Maybe it sounded like a dream job at one point in time. But it just isn’t such a great job anymore.
Don’t be that person with zero career flexibility due to a lack of savings. That’s just a horrible way to go through life.
So again, the best way out of feeling trapped in a career you don’t like anymore is to have the financial freedom of movement required to make a career change. And the best way to get that freedom of career mobility is to save up six months of expenses.
Career Change Forced Upon Us
And then there are those career changes that just come out of the blue. Don’t think that could possibly happen to you? Think again. It could happen for a whole host of reasons: the business is shipped overseas, the owner sells the business, your boss changes and the new boss doesn’t like you at all. And the list goes on and on.
How much money should I have in an emergency fund? Knowing the answer, and actually having six months of expenses set aside, will be life changing if a career change is forced upon you. Because all you’ll need to do is reach out to your network and get right back on your feet again at a new job. And hopefully even a better job!
What Can An Emergency Fund Be Used For
Your emergency fund is best used for, you guessed it, emergencies! An emergency is something that happens out of the blue and has to be addressed right now. We covered some of them earlier, but let’s just spend a bit more time on the topic of emergencies.
Here’s a short list of emergencies that happened to me.
Driving down the highway, tire blows, and in the process of maintaining control and exiting the highway, I did a lot more damage than I realized to the suspension and brake systems.
We were literally sitting down at a car dealership about to sign paperwork, and one of the kids called to say he had been in a car accident. You can’t make that stuff up!
A heavy rainstorm caused the basement of our new house to flood uncontrollably. That one ended up costing money in more ways than one! There was the insurance deductible. And then there was the money we had to spend to fix what had become a rather obvious drainage problem.
Family emergency required an urgent cross-country flight and hotel stay.
I could go on and on, but you get the point.
An emergency is not a vacation you decided to take at the last minute.
Your emergency fund is there for those life events that, despite all of our best planning, just come out of nowhere and require more than pocket change to cover.
An Emergency Fund Allows You to Start Paying Off Debt
It gives you the breathing room and peace of mind to do some wonderfully serious financial planning.
You’ll finally be able to sit down, take a close look at your overall financial health, and start the process of getting out of debt ASAP. It allows you to take that next step down the path to personal and financial freedom by using the “steamroller” to wipe out your debt. And that’s a huge step in the right direction. At last, you’ll begin to realize you’re going to make it!
Remember to Replenish Your Emergency Fund
Let’s say you’ve had a need for the emergency fund. No problem, that’s exactly what it was there for.
Now you just need to shift gears a little bit and replenish your six months of expenses. And once you get the hang of it, shifting financial gears will be just like learning how to ride a bike.
Conclusion
When life throws you a curveball, it’s nice to know the answer to how much money should I have in an emergency fund. The answer is six months of expenses.
All sorts of good things will begin to happen once you’ve set aside six months of expenses. Your quality of life will improve; your relationships will improve; your stress will go down; you’ll have more, and higher quality, family time, you’ll be able to start that dream job, etc.
And perhaps most importantly, you’ll begin to realize the Stepping Stones to personal and financial freedom are real. You’ll begin to see the light at the end of the tunnel!
Now it’s just a matter of taking the next step.
Next Steps
You’ve made it this far! Keep up the good work.
By this point, you are now partnered with a fantastic banking partner.
Once you’ve set aside six months of expenses, it’s time for Stepping Stone #3: the “Steamroller.” In this step you’ll learn how to efficiently and quickly pay off your loans early.
Get excited! This next step is a huge life changer.
