How much should you have saved in your Emergency Fund?
The prescriptive answer is 3-6 months but in reality, it's you (and your family) who have to face the music if something happens. How much do you need to rest easy? Depending on your job stability and who else is relying on you for income (spouse, kids, parents) you can get a sense of how much cushion you need in case something happens and you lose your income for a few months.
Big companies have layoffs, small companies close down, you fall and hurt your back and can’t work for a few months, you get fired. If you have a specialized profession, it can take anywhere from 6-12 months to find a new job. Be realistic.
Ideally, you’re saving at least 10-20% each month. If you can’t save that much, take a long hard look in the mirror. You have to save, even though you don’t feel like it. Nobody ever feels like saving.
A few practical ways to get started:
1. Setup automatic savings that goes directly from your paycheck to your savings account so you never even see it.
2. Stop buying so much stuff - unsubscribe from email newsletters from stores, get off social media, make a list of the things you want and wait for a few weeks to make sure those items are a priority instead of ordering it online right away.
4. Set Micro Goals - don’t buy takeout for a week, make your coffee at home for a month, don’t buy anything from amazon for three months. You’ll be amazed how you can adjust and when you go back to ordering take out, you’ll do it with more awareness.
5. Look at your accounts! According to a 2017 study, the National Bureau of Economic Research notes people pay more attention to their financial accounts when they anticipate seeing something positive. This practice is referred to as the “ostrich effect,” since investors often avoid negative information in the same way that ostriches put their heads in the sand.
Get used to looking at your spending each day so you know where you’re money is going. It shouldn’t be scary - it should be empowering!
Once you have the Emergency Fund in a comfortable place, you'll rest easier, you'll trust yourself and pride yourself in your self-discipline and you'll have peace of mind.