Keep reading to see exactly how much you should have saved, as well as how to start doing it today.
Maintaining money in a savings account for a rainy day can be hard when you can barely keep up with your expenses. Still, you should try your best to save money for emergencies because you never know when one will appear.
With that being said, let’s look at why savings are important and how to start building them. Once you do, you’ll be able to have some peace of mind in this sometimes unpredictable world.
The Exact Amount of Savings to Aim For
Are you ready to find out how much you should have saved to stay afloat during an emergency? Here’s the answer, according to experts: Six months’ worth of emergency expenses.
If that sounds like a lot, it’s because it is, especially for families with tight finances. How much do six months of expenses equal? According to Bankrate, the amount is roughly $19,500 for a family of four.
Before you panic, know that most people in the United States do not have such savings. The Federal Reserve states that only 80 percent of the top income earners have the appropriate savings for emergencies.
When it comes to median-income households, the majority have just 20 percent of the suggested savings. Lastly, a Bankrate survey found that only 29 percent of the adult population has six months of emergency expenses saved up. In other words, most are not prepared to meet a disaster head-on.
How to Start Saving for a Rainy Day
Figuring out how much six months of expenses is off the top of your head can be difficult. That’s why your first step should be to write down which costs are not avoidable.
If you lost your job, for example, pick the monthly expenses that must be paid each month, such as your mortgage, car payment, or health insurance.
Second, assess your current situation. After determining which costs must be paid, multiply them by six. Do you have that amount saved? If not, it’s time to work your way up to it by saving now.
If you can, set up automatic savings so that 5-10 percent of each paycheck goes directly to a savings account. Also, make it your goal to put as much cash as you can into savings until you accumulate at least one month’s worth of savings. Once you have that, aim for two, three, four, etc.
Avoid falling into a common trap that occurs to many “new” savers. Once they have three months’ worth of expenses saved, they tend to stop saving and feel comfortable with that amount. If you do the same, you could come up short when a long-term emergency arises.
Want more ways to save so you can stack cash for a rainy day? Keep an eye on our site for tons of tips and tricks on saving cash.