You probably know the “rule” of emergency financing – you will save 3-9 months to cover potentially unexpected expenses.
And while it’s a good rule to follow, few people will actually save – a 2021 GoBanking survey found 40% with a small savings of $300 (N150,000) – so we asked professionals: As a solid emergency fund now unavailable, what is the minimum amount of money you need to save?
Chanelle Bessette, a banking specialist at NerdWallet, says you should try to have at least $1,000 (N500,000) on hand.
“A small $1,000 emergency fund would have to cover most of the small costs, such as purchasing new car tires or having to travel on an emergency trip, such as caring for a family. A family member in a hospital or attending a funeral,” Bessette said.”
And Charles Lattimer, vice president of innovation and growth at FinFit, announced the first goal of saving $1,000. “It’s 100% psychological and practical.
According To Money Pros, This Is The Minimum Amount Of Money You Should Have In Your Savings Account
Psychologically, most working people can achieve this goal within a few months to a year. In practice, research has shown that about 90% of all unforeseen extraordinary expenses can be covered by $1,000,” said Lattimer.
Of course, that $1,000 is the starting point. “The end goal is to have enough savings to cover the 6-month cost.
(Another thing to consider: you’ll definitely need six months or more of essential spending to cover all of your basic bills, which can make this goal easier.)
Why the emergency fund is so important
As shown in the early stages of a pandemic, unemployment and income disruption can occur suddenly and without warning.
“Having an adequate emergency savings plan is a debt buffer against high-interest rates and serious or desperate lifestyle changes to increase household incomes,” McBride said.
This emergency fund can also prevent you from immersing yourself in the funds you need for other reasons.
“You don’t want to cash out your invested assets or accounts, which can cause tax problems and force you to sell at the wrong time,” said Stephen Carrigg, a certified financial planner and director of investment research at Integrated Partners.
How to save on an emergency fund
To begin with emergency savings, Anne Marie Ferdinando, Contact Manager at the Federal Federal Credit Union, suggests creating a detailed budget.
“Your budget can be a useful guide to keeping expenses within certain parameters, but you should also set specific savings targets.
Saving can be difficult at the moment, but participating in the monthly online setting up of savings accounts, emergency funds, or contributing to a retirement account with tax benefits can make a big difference in the long run. “Ferdinand said.
One place to look: Online savings accounts offered by federally insured digital banks and credit unions offer security and at the same time have access to money without penalties when needed.
“They still pay better returns than the regular savings accounts of most banks and other cash investments,” McBride said.
“Find a savings account with a low minimum initial deposit and no current balance requirements; there is a lot available with a competitive return,” McBride said.
Of course, in the midst of rising inflation, savings are not good either.
“When it comes to finding a savings account, interest rates are generally very low. Some digital banks offer better rates than others, but most are almost 3%, so we don’t want people to keep too much money,” Carrigg said.