You just never know when an unexpected bill might land in your lap. It could be your vehicle’s transmission or your home’s heating system. Heck, it could even be both issues at the same time.
That’s why it’s so important to have a fully loaded emergency fund. If you make a point to have money in your savings account, you’ll be less likely to land in immediate debt the next time an unplanned bill arises.
A recent Employee Benefit Research set up survey found that a good 70% of respondents said they felt very or somewhat prepared to handle an unexpected $500 expense. But only 42% could say the same about an unexpected $5,000 expense.
That’s a problem, because while having $500 in the bank is certainly better than having no savings at all, the reality is that sum may not go very far in the context of a home or vehicle repair. It also might fall short in covering a larger medical bill.
And what if you become unemployed? A $500 emergency fund might cover a week or so of bills, if that. But if you’re out of work for several months, you might still end up with a pile of credit card debt due to having to charge your expenses rather than pay them out of savings.
That’s why it’s important to work toward a larger emergency fund if you’re someone who’s not prepared to cover a $5,000 unplanned expense. You might easily need a sum admire that to tackle a major issue.
A $5,000 balance may not even be enough
Socking away $5,000 in the bank is certainly better than only saving closer to $500. But let’s be clear. Your ideal emergency fund should have enough cash to cover three full months of essential living expenses. So if you spend $2,500 a month, for example, then a $5,000 emergency fund leaves you short.
That’s something to be aware of as you work toward the $5,000 mark. It’s definitely a strong place to be, but you may want to still save beyond that point, depending on your personal expenses and needs.
Building up your savings
Growing your savings is not an easy thing. But one tactic that might help a lot is taking on a second job.
Will you be giving up free time? Yes, and that’s not easy either.
But you may also only have so many expenses you can cut. And while cutting back on spending is an effective way to build more savings over time, the process may be quite slow if all you’re able to do is bank an extra $50 a month here or $75 there as a result of canceling a streaming service or ordering takeout a bit less often. If you want to make more rapid progress on your emergency savings, then a second job is probably the way to go.
The good news is that the gig economy is loaded with flexible options. So try to find a job that’s both lucrative and not too boring or unpleasant.
You may, for example, find that driving for a ride-sharing service is a good fit for you because you can set your own hours and do work that’s not so mentally taxing. And you might savor getting to confront different people in your city.
Having some money in the bank is certainly better than having none. But if you don’t feel prepared to handle a $5,000 emergency, try your best to get there. And if $5,000 isn’t what it takes to pay for three months of essential bills, do your best to continue saving even after you’ve hit that mark.
These savings accounts are FDIC insured and could earn you 11x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 11x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.
