As an individual, you want to make sure you have peace of mind in your personal life, and that includes having a solid financial plan.
If you have a lot of debt or bills to consistently catch up on, you may not be able to handle an unexpected expense that pops up out of the blue.
Debt can cause a lot of stress, so staying on top of your finances and managing your spending habits is important.
An emergency fund is just a safety net that can help you pay for a rainy-day emergency.
Although you may not run into a large medical bill in the near future, it is important to be able to prepare for the unexpected! If you have a considerable amount of money in your emergency fund, you’ll be able to handle a lot of unexpected expenses that come your way, so you don’t need to take on more debt such as credit cards or a car title loan in order to make ends meet.
Having an emergency fund can provide you with peace of mind, so you can sleep soundly at night, knowing that you are financially sound.
How Much Money Do You Need to Build an Emergency Fund?
It depends. Most financial experts recommend putting aside enough money to cover 3-6 months’ worth of living expenses. This includes money for rent, utilities, groceries, and more.
It should be enough for you to live comfortably and not have to worry about paying your bills.
Did you know that according to a recent survey conducted by CNBC, over 53% of Americans say that they do not have any emergency money saved up?
This is likely due to a lot of factors, including the pandemic, inflation, and other recent events that have caused a lot of economic turmoil.
How Can I Start to Build an Emergency Fund?
In order to build an emergency fund, you will need to start with the basics. If you are currently living paycheck to paycheck, it won’t be easy to save money.
Therefore, you need to sit down and take a look at your current financial situation. Are you overspending on unused or overpriced subscriptions? Those should be some of the first expenses that you cut out.
Additionally, try to cut back on impulse purchases, such as a new blender from Amazon. If you are able to cut out the small expenses, it can add up over time! For example, paying $15.49 to watch Netflix each month adds up to over $180 dollars per year!
Review your monthly gross income and expenses and see if there are any areas you can cut back. If not, you may need to get a side hustle or ask for a raise at your current job. Without that extra income, it will be difficult to save money and create an emergency fund.
You may be able to cut back on certain areas of your budget, such as eating out, by slowly siphoning money from that area and setting aside a certain percentage of your income each month for saving. Use that money to slowly build an emergency fund!
Even if you aren’t able to build an emergency fund right away, having some money put aside is better than having nothing. As the saying goes, “Slow and steady wins the race!”
How Much Money Should I Have Saved in My Emergency Fund by 25?
Life is not the same for everyone, so don’t be discouraged if you do not have a lot of money saved by 25. Although many financial experts recommend having at least 20% of your yearly gross income in savings by 25, it may not be feasible for you right now.
You may be behind in life right now, but you don’t have to stay that way forever.
It could take you a few years to build an emergency fund, and that’s okay! Life moves at a different pace for everyone, and many 25-year-olds are fresh out of college and still figuring everything out.
Whether you are 25 or 45, it is important to build an emergency fund and have a safety net. Although you may start small, saving money over time is important!