If an emergency fund bails you out when things go unexpectedly wrong, how much do you need to feel safe? The nature of unexpected expenses means you won’t always know when they’ll arrive or how much they’ll cost when they do.
What Do You Do if You Don’t Have Any Savings Right Now?
Life is full of surprises, and they aren’t always pleasant. Eventually, you’ll deal with something, like a broken taillight or a medical treatment not covered by insurance, and you won’t have the cash on hand to handle it.
Your lack of savings makes dealing with the unexpected hard, but not impossible. You can get a line of credit to help you. This financial safety net catches you if you haven’t built up enough savings before the next unexpected expense crash lands in your budget.
You can visit Fora to learn more about how a line of credit works. In a nutshell, a line of credit provides a cushion of cash you can tap in emergencies. It’s an open-ended loan, so, if approved, you’ll receive a credit limit that you can draw from, repay, and draw again any time you need help.
How Big Should Your Emergency Fund Be?
Typically, most financial advisors recommend saving between three to six living expenses. However, some advisors think you need more.
For years, Suze Orman, New York Times Bestselling author and personal finance expert, has said that an emergency fund should include 8 to 12 months of living expenses.
Today, she’s updating her advice to reflect current events. She now suggests everyone save at least 12 months’ worth of expenses in preparation for 2023’s possible recession.
What are Living Expenses?
Did you notice how the guide suggests three to 12 months of living expenses, not income? That’s for a reason. It’s so that your fund can cover your bills.
But what, exactly, are living expenses? Generally speaking, they’re the essentials you can’t avoid. These expenses keep a roof over your head and food on the table.
- Housing costs
- Food and groceries
- Transportation
- Basic toiletries and clothing
- Household goods
- Healthcare
Beyond these expenses, you might include other spending depending on your risk tolerance. Orman says you should include your average monthly spending in this fund, including entertainment and drinks.
Her argument? It’s tough enough dealing with illness or job loss without also living on a strict budget. Factoring a little bit of fun money into your fund can take some of the pressure off.
How to Set Aside More Cash into Savings
Saving six months of your living expenses is a daunting goal. Don’t worry if you feel overwhelmed — everyone does at the start. What’s important is that you do start, even if you can afford just $25 a month.
Granted, the bigger your contributions, the faster your fund will grow. Here are three simple ways to fast-track your savings:
- Meal Prep. Every meal you eat at home saves you from costly takeout and restaurant dining.
- Go meatless. The average vegan spends $23 less each week. You may save even more if you stick to cheap produce, legumes, and rice.
- Cut alcohol. You can save quite a bit by limiting your alcohol consumption. While out with friends, order a pop or water instead.
For more money-saving ideas, look back at your spending for the past three months and highlight any unnecessary splurges. By avoiding similar spending in the future, you can save more in your emergency fund and hit your targets soon.
Also read: How Can a Savings Plan Help to Fulfill Your Life Goals?
