How Much to Save in Your Emergency Fund
Emergencies are never expected, and often times they arise during the worst possible moment. Nothing is more stressful than wondering how you’re going to be able to afford an emergency, so today we’re discussing emergency funds and how much should be in them. It’s not always a fun topic, but it is a necessary one!
When it comes to financial disasters, these can often sprout from thinking that it’ll be okay to put a hefty cost on your credit card. This leads to paying interest on an already large expense, and stressing out over when you’ll be able to pay it off. This is where an emergency fund comes in for the unexpected. But how much should be in your emergency fund? Today, we’re breaking it down.
It’s suggested that a typical home repair emergency fund have between 1-3 percent of the home’s value. Every situation varies depending on numerous factors, but generally, 1-3 percent of your home’s value should cover a repair. Now, when it comes to general emergency funds that is a bit of a different story. First of all, you should have two seperate emergency funds for differing types of scenarios, the first being a general emergency fund and the other a dire emergency fund. In the general, you should be preparing for things that are everyday emergencies. Say your air conditioning or boiler has entirely given up, these are big expenses for items that you may be using everyday. In this fund, aim to have about 10% of your annual budget stowed away.
In the dire emergency fund, aim to save around 20% of your yearly wages. This fund will be for the higher impact, bigger scenarios. The emergencies which can be life changing if unprepared. This could be anything from flooding, a tree branch falling on your roof, or even to something more serious such as being laid off or suffering an injury. While both of these numbers are significant, setting aside money weekly can help you get closer to your goal, and you’ll be very relieved when a situation arises and you already have funds set aside. It is an intimidating and gloomy fund to have to start, but nothing is worse than not having a fallback in a sticky situation.