This was the headline of article written in 2018, before the global pandemic of 2020, 2021,….
In talking with many people since then then, I’ve found that they tend to fall into two basic groups.
First – with the ongoing risk from the pandemic, how can you ever have enough saved, and why should you bother.
It’s easy to get down when you’re standing at the bottom of a financial valley looking up.
However, the second group stands in the same valley and thinks, “I’ve got to be better prepared.”
Many people I know are looking to save not just $400, which I consider the bare minimum for an emergency fund, but even more.
As the pandemic has shown, you cannot control what happens to you, but you can control how you respond.
I’ve known many people who have lost their jobs, had hours cut, medical bills, etc. The ones who were better prepared, always came out better – maybe not unscathed, but better.
I recommend three levels of savings.
$500 Saving Level
I recommend a $500 cash savings, be kept on hand. Now on hand for us, is in a small safe in our house. It is meant that we can grab it at any time, day or night, and in the midst of a big emergency, we don’t have to wait for a bank to open, or anything like that.
$500 may seem like a lot, but it isn’t too big. This is where being a saver can really help. Take a few months, save up some money, or sell a few items, to get yourself ready for your emergency fund.
$1,000 Saving Level
That $500 may seem like a lot, until your fridge dies and you have to replace it. A cheap fridge is $700, with larger ones being $1000 to $1200. Need four new tires, or a new transmission – here’s where the $1000 comes in handy.
I don’t keep this on me (or at my house). Instead, aim to keep this in the bank, in a savings account. It won’t grow much in this economic environment, but it makes it a little harder to spend, but still gives you easy enough access five to six days a week.
A $1,000 may seem like a lot, but once you save your first $500, the next amount will seem easy as you’ve put in place ideas on how to slowly save and build up that emergency account.
6 to 12 Months Salary
This seems nearly impossible when starting, but the pandemic has shown just how important it really is.
Many people before the pandemic, before a job loss due to the economy shutting down, were told 6 to 9 months, while many people have said that the global pandemic has shown how fragile the economy really is, and said that 12 to 18 months is what is really needed.
Personally, I aim for 6 to 12 months, as it’s easier to obtain, and as we’ve seen, even with things shut down, there is always things that can be done. It may not be the best job, or the job you want, but it can help slow the financial bleeding.
This emergency fund will be a bit different however. Since you, probably, won’t need to access it all at once, you can save and invest in mutual funds, or other safer style investment engines to help you get there instead of just saving the money on your own.
For myself, it took several years and lots of planning to get to save 6 months. Surprising, even though my salary went up, getting to the next 6 months was easier, since I was used to living on a budget, and we put most of the extra money from raises to the saving.
While we’ve only needed to use this money once due to a job loss, it was comforting to know it’s there, just in case, especially with the job market the way it is right now.
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