Simply put, this depends on the stability of your household income. The more stable your household income is, the less you need in your fund. For example, a stable two-income household is unlikely to need as high an emergency fund as a one-income family.
While small amounts, say $1,000, can cover some emergencies, they're insufficient in covering things like living expenses, rent and food for long periods. As such, a good goal is to save enough funds to cover six months worth of expenses. (You can use your after-tax take-home pay as a quick proxy for your expenses). Of course, most people would find it extremely daunting to save up such a large amount of money all in one go, so start with small, achievable targets first, which also helps to build up a habit of saving and living well within your means.
Moreover, if you’re a freelancer or work in seasonal employment, chances are that your income is less stable - so you should aim for a higher target than six months of expenses. This fund will shield you in times when there's less demand for your skills, or if you need to search for a new job. Another risk factor to consider is the existence of chronic health conditions within your family. If this is the case, then the chance of having sudden large medical bills is much higher.
Imagine how big a relief it would be to know that you have a financial safety net in place. Being financially prepared for unexpected expenses results in peace of mind. Your rainy days are now nothing more than mere inconveniences.
WHAT IS AN EMERGENCY FUND? COMPLETED ✅
Sources:
.svg)
.svg)
.svg){kind=icon}
