Expect the Unexpected

We’ve established that no one has a crystal ball to peek into the future, so saving money for emergencies and unexpected expenses is a really smart idea. Creating an emergency savings fund is a great way to be prepared for the future and expect those unexpected expenses that always seem to occur. But, exactly how much money is needed to be saved for unexpected events? It is recommended that a person save at least six months worth of their expenses in a savings fund to pay for unexpected expenses. For example:

That may seem like a large amount of money at first, but consider this - what if Cory loses his job? He now has no income, but he still has to pay his rent, buy food, and make his car payment. And now he has to pay for gas to drive to job interviews and buy a nice suit in hopes of getting a new job. He is still spending $1000 per month. Where is this money coming from? His savings. How long does Cory have to find a job before his savings runs dry? Approximately 6 months but this doesn’t include any emergencies or additional expenses that may come along during his time of unemployment. What happens if 6 months passes and Cory still doesn’t have a job?

Can you see how emergency savings can disappear really fast? The recommendation of 6 months of expenses in savings only takes into consideration your emergency savings fund. However, what if you want to save money to purchase an expensive item, like a new computer, a vacation, or new furniture? It is great to save money to purchase expensive items, but it is recommended that this amount of money be considered separate from your emergency savings.

In summary, expect the unexpected by creating an emergency savings fund worth a minimum of 6 months of expenses.