Every family should build up their emergency fund to an amount equal to 3 – 9 months of living expenses. Why? With this reserve, you are building your safety net against major life events so that you can avoid going into debt.
When you have 3 – 9 months of income in savings, there aren’t too many emergencies that you can’t cover. Lose your job? You’ll be able to pay your mortgage while you search for a new job. Car accident? Your fund will cover the deductible.
You also mitigate your risk, rather than letting a bad situation turn into a catastrophe. A medical problem won’t turn into bankruptcy, and a job loss won’t turn into a foreclosure. By building up a cash reserve, you manage the risk that comes along with those major life events and stop them from turning into a life-changing crisis.
How Much Should I Save?
The decision of how much money to save in your emergency fund will vary depending upon factors like your living situation, number of dependents, job stability and others.
Building a safety net is always a smart move, but in today’s economy, it’s an absolute must.
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