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Emergency Money for a New Economy

How much reserve money you really need right now?

By
Laura Adams, MBA
4-minute read
Episode #114

Determine How Much You Need

How much is enough? Your reserve goal should actually change as your life and the world around you change. If our current economy has taught us anything, it’s that we can’t know what may be right around the corner. So think of your emergency savings as a moving target that should be reevaluated a couple times per year.

The first step is to accurately figure your monthly living expenses. These are the essentials such as housing, utilities, insurance, food, loan payments, transportation, etc. Add up all your current financial needs and obligations for yourself, your family, and to third parties that you couldn’t or wouldn’t want to cut if your income was seriously reduced.

The second step is to estimate for how long you could potentially need your emergency money. I recommend saving no less than six months’ worth of living expenses. But your unique situation might call for considerably more or less savings. Here are some tips to help you determine how much you should set aside: 

  1. Be realistic about the stability of your household income. Do you or your spouse work in an industry with volatile consumer demand or one that’s already been steadily declining? If so, this should prompt you to consider saving more than six months of living expenses.

  2. Add a safety buffer. Consider adding an additional 10% to your calculated monthly expenses. This will give you confidence that you’ll have enough for job hunting expenses or other surprises that you may have forgotten to estimate.

  3. Consider funds you already have saved. If you have savings that aren’t in a retirement account, perhaps you can earmark all or part of it for your emergency fund.

  4. Don’t count on selling stuff. When times get tough, it can be difficult to sell possessions, especially if you need the money quickly. So cash is king for your reserve fund.

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlersbook is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.