Well, if you’re like most Americans, more than you probably have in there now. More than half of Americans have less than $1,000 in their savings accounts, according to one survey.
That number is a good target to start with—$1,000 should be enough to cover a basic emergency, like a car repair, unplanned doctor’s visit or other unexpected expense. From there, work up to having enough cash available in an easy-to-access, high-interest savings account to cover three to six months’ worth of expenses.
Why that much? The thinking is that the worst-case scenario when it comes to money issues is losing the ability to work and earn enough to support your basic lifestyle. So your emergency fund should be ready for that exact situation: If you lose your job, it should be able to take care of you until you find another one. Hopefully, three to six months would be plenty of time to do that, but if you fear you’d need longer, you might want to save up even more.
Not all savings need to be dedicated to “emergencies,” of course. You probably have short-term goals you want to save up for, like a big vacation, a fancy dinner to celebrate your birthday or holiday gifts. Budget for these extra costs ahead of time, and you can avoid charging them to credit cards and losing money to racked-up interest.
November 14, 2017