I am often asked how much should you have saved? Well isn’t that the million dollar question (pardon the pun!) But seriously, what is a minimum guide for how much money you should have saved for emergencies?
There are a range of suggestions professionals make when guiding people on savings. Mostly these focus on how long your savings would last and they often seem like huge targets to achieve if you don’t have much in savings (or anything at all). So where do you start? These are some helpful tips that will let you build up your savings and set realistic goals that are motivating and achievable.
So… where to start
If you have no savings & not much income
Ok, so your bank account is at zero at the end of each week (and you probably also have credit card debt). If you read the advice of 3-6 months of expenses saved and laugh hysterically because it seems totally unachievable then start here. I get it, we’ve all been there. Let’s start small. I want you to set a goal to save the excess of your car insurance or the cost of replacing an essential household appliance (like your washing machine). It will probably be an amount of $500-1000 and it may take a while. That is ok. The important thing is that you keep it saved. Don’t spend it on everyday expenses. Lock it away in an online account you can’t easily access.
If you have little savings but a decent income
There are plenty of families out there on good incomes that cover their expenses (and more) but that still don’t manage to save much. If this is your family then I have a challenge. Sit down and work out a super tight budget. I’m talking the minimum you can live on for a month or two. Now…here’s the challenging part. Stick to that budget for 6 weeks, at least. It probably isn’t a budget that you can keep indefinitely but if you go hard for just 6 weeks you will build a nice little savings balance. You may also surprise yourself with how easily you can cut back. Once the 6 weeks is up, don’t go crazy, modify your budget and work out a realistic and consistent saving target and then stick to it. Repeat this process every 4-6 months. After a year you should have at least a month worth of income saved plus you will have learnt some new habits to reduce your spending.
How much do I need
If you really want the detail, here are some guidelines, stepping up to the ideal…
- Enough to cover a month of physiotherapy or a couple of specialist medical appointments if you got sick or injured
- Enough to replace an essential household appliance if it broke suddenly
- Enough to cover your car insurance excess
- Enough to survive without being paid for a week (perhaps your companies payroll stuffs up!)
- Enough to cover your basic expenses (rent/mortgage/food for a month
- Enough to cover your basic expenses for 3 months
- Enough to cover all general living costs for 3-6 months