Having an emergency savings account is a good idea – set aside a little money every month for a rainy day when you may need a small fortune. Setting aside emergency savings can help you get by if your home or car needs urgent repairs, as well as in more serious situations such as illness or unemployment. Creating an emergency savings fund today can have a big payoff later. The real question is figuring out how much you need and how to get started.
Some of the expenses you should consider taking into account are food – start by estimating your food expenses and include those costs in your emergency fund savings. You could save money on food by cutting back on eating out but this is likely to be a regular expense.
Next you need to consider your housing expenses. You will need savings for housing expenses such as rent or mortgage, property taxes, insurance and utilities. It’s a good idea to also include savings for emergency home repairs.
Estimate your monthly Insurance bills as medical and dental insurance is critical, particularly if you are unemployed. If you have a vehicle, your emergency savings should cover necessary costs such as your car loan, auto insurance, basic maintenance, fuel and emergency repairs.
A regular savings account is a good choice if you’re just starting to save and want to be prepared for unexpected expenses. However, you could also consider a fixed deposit that earns you a higher rate of interest while also protecting your funds for when you may need them.
Ideally, an emergency savings fund should be sufficient to cover your major expenses for around six to nine months. If six months seems intimidating, you can always start by targeting three months of expenses and build from there.