The other day I published the article Do You Have an Emergency Fund? I am a firm believer in a person having an emergency fund, whether or not you have debt. However, the next question is how big should an emergency fund be?
This is a tough question to answer, and this is one that many people often ask when they first start building up their emergency fund.
Below are different things you should think about when determining how big or small your emergency fund should be:
If you have debt…
If you have debt, then they say you shouldn’t have as big of an emergency fund because your money would probably be better spent paying down debt because of the amount of money that is probably going towards interest charges.
I still think you should have an emergency fund if it’s possible though. Even just $1,000 can help you. I say you should have an emergency fund because if you don’t have just a small one, then the littlest thing may put you into even more debt.
Enough to cover potential job loss.
No matter how safe you think your job is, there is always some change that it is not 100% stable. Anything can happen, and you can never predict the future. You never know if something may happen to you or your job.
If you work for someone else, the usual emergency fund is usually around 6 months of your normal expenses. If you work for yourself, then I personally am more comfortable with around 8 to 10 months of expenses. This is because you never know if you may have multiple bad months in a row.
Repairs and replacement.
If you own a home, then you definitely want an emergency fund. You never know if something may break such as your air conditioning, furnace, your roof, and so on.
The same also applies for cars as well. You just never know if something may happen, and if you have an older car then having a repair fund for it is almost a need. You don’t want the smallest car repair to break you and/or your budget. You might want to have an emergency fund that is around what it would cost to replace something average on your car.
In the end, it’s all up to you.
There is not one magical number that works for all. There are many different circumstances that come into play, and you really need to think about a number that works for you best.
How big is your emergency fund?
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