Preparing for the unexpected emergency seems impossible. The main reason is it’s UNEXPECTED. You don’t know how much to save or what to prepare for because there is no warning for what’s going to happen. All the more reason to prepare. Waiting until the emergency happens is always too late. 66 million Americans do NOT have emergency savings. (Click here for more info).
Here is a good guideline from Edward Jones for amounts to save:
Below are some tips from Edward Jones on how to prepare and save for emergencies.
Rule #5 from my book The Fantastic Life: Make Sacrifices
Saving may mean not going out to eat is much or even not going on vacation one year, but is a worthy sacrifice to be prepared in case of an emergency. It’s a small sacrifice now, so you won’t have to make a bigger sacrifice down the road.
How Much Should I Save for Emergencies?
It’s always a good idea to save some cash for a “rainy day.” An Edward Jones financial advisor can help make sure your savings support your overall financial strategy. After all, you’ve worked hard to keep your financial strategy on track, right? An unexpected expense could easily derail that strategy.
- A job loss or early retirement
- Large housing or auto repairs
- Expenses related to child care or aging parents
One way to prepare financially for things like these is by creating an emergency fund. We know that putting money away to prepare for the unexpected can be hard, especially if you don’t know how much you’ll need – after all, they call these unexpected expenses for a reason.
- If you’re still working – between three and six months’ worth of living expenses
- If you are retired – up to three months of living expenses for emergencies, as well as about 12 months’ worth of living expenses (after accounting for outside sources of income) to provide for your everyday spending
Regardless of whether you’re working or not, you may also want to look into your access to a personal line of credit. It can help you supplement your emergency savings if the need arises.
How Much Should I Have in Cash for Other USES?
While you might think “the more, the better,” that isn’t necessarily the case. Having too much of your savings sitting in cash can be an issue, especially when you’re investing for long-term goals such as retirement. Ultimately, your cash strategy can be a key factor in your long-term financial success.
To determine the role of cash in your financial life and how much you should have, look at your “USES”:
- Unexpected expenses and emergencies – cash used for situations such as a job loss, a home repair or an unplanned medical expense
- Specific short-term savings goals – cash dedicated for a goal that will occur within the next year or so, such as a wedding or vacation
- Everyday spending – cash used for your lifestyle and day-to-day spending needs, such as groceries, utilities, mortgage and debt payments, and entertainment
- Source of investment – cash used as an asset class and as a source for investment opportunities