Ask a Guide: How Much Should I Put into an Emergency Fund?
I’d like to think there was one answer, but I suggest one approach instead…
Small wins lead to big victories.
Start with a minor catastrophe fund. Pick a round amount it would take to replace your transmission, your MacBook, or your smartphone. Those are the ones that tend to snare me in a moment of weakness. Google several top ticket items and you’ll have a great idea.
Create the first goal, achieve it, repeat.
Be realistic with small wins, whether that’s $1,000 or more, find what makes sense for you. You’ll have a process you can repeat multiple times until you have enough saved for bigger emergencies like moving, or having time to find your next job. Having options is good!
Keep it separated.
Look for a savings account with features that appeal to you (Goal-based savings buckets, compelling interest rates, etc.). Adjust your direct deposit or set up an automatic transfer to that dedicated account so you won’t be tempted to use it!
This is one example… don’t be afraid to experiment and optimize!
If you’re not in debt (that’s another discussion!), I’d suggest setting a goal of 20% for saving + donations. Assuming your payroll deposit is $2,000 and you’re paid twice a month that gives you $400 to allocate. Splitting it (again, you get to prioritize) leads to a $200 donation & $200 into savings. That’s $1,000 for each in just 2 1/2 months.
Keep it up and you’ll be donating and saving around $5,000 annually.
The first year is all about finding the process that works for you, regardless of what you make. Remember to keep your savings target small and you won’t get overwhelmed. After just one year you’ll be a money boss compared to what the average American has saved. Do it long term as your income grows and you’ll have peace of mind knowing you’re ready in case of emergency.
Jason Young is our go-to guy for all things personal finance. He’s spent 14+ years in community bank’s leading teams focused on digital transformation and customer support. He’s heard many of our pain points and worked on building solutions to meet them. Now he’s sharing what he has learned to help you. Plus, he likes gaming, social media and new tech so he speaks our language!
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