If you’ve found yourself with a little extra money in your budget this month, how are you going to spend it? Or, better yet, how are you going to save it?
Having a dedicated fund for emergencies helps you cope when something happens, giving you a buffer that protects your savings. Knowing that things are paid for during an emergency saves you from having to worry about money and lets you focus on getting your life back on track.
Start by putting away a little every month and aim for a fund of $1,000 to start with. From there, you can work on building up toward three or even six months of expenses so that you won’t have to turn to credit cards if you’re out of work or have an unexpected emergency.
Sudden job loss can leave you without income for weeks or potentially months. When you’re not working, your monthly expenses won’t stop—you’ll still have to pay all your bills and take care of your health. Average household expenses in the U.S. are approximately $5,000 each month, and you’ll need to have that much set aside for each month that you’re out of work.
Having an unexpected accident or illness will bring costly hospital bills, with or without insurance. If you get injured and need emergency care, an ER visit can cost you hundreds and possibly thousands of dollars, and any follow-ups or medication prescribed would add more on top of that. If an accident happens while you’re traveling out of network, you could be facing significantly steeper costs than at home. And if you have to take time off from work to recover, you’ve got even less income to deal with the new financial burden.
Cost of living increases
Spikes in rent or the price of gas can easily rock your financial stability. If you’ve got a pretty tight budget and know what you can and can’t spend, a sudden increase in living costs can be significant. Average rent prices in the U.S. rose by 2.5% in 2019, and if your rent goes up you might have to scramble to come up with the balance moving forward.
Sudden moves or travel costs
Having to travel or move for work or personal reasons can sometimes leave you paying out of pocket. Whether you’re packing up and moving cross-country or some place nearby, you’ll incur plenty of unexpected costs, from moving supplies to truck rental. If you’re moving locally, expenses can range from $800 to $2,000 for a four bedroom house. Moving across country or out of state is even more expenses, averaging about $1,000 per room. Similarly, if you start a new job with a longer commute, you might need extra funds to cover a bigger gas bill each month.
If you use a car to get around, repairs and maintenance can add up. Taking good care of your vehicle means regular maintenance—oil changes, headlight replacements, transmission fluid, which you should be able to factor into your budget in advance. But an unexpected windshield crack or popped tire could cost a few hundred dollars out of pocket. And more serious repairs or part replacements like a new suspension or transmission could set you back thousands before you can get your car back on the road.
Start Building Your Emergency Fund
Having an emergency expense fund can protect you from scrambling when unexpected situations arise. Once it’s in place, you’ll have peace of mind knowing that you’ve got a plan to deal with whatever may come your way.