These are important points that will help you know if your savings are up to scratch.
- It is important to keep money in the bank in case of an emergency.
- Underfunding your emergency savings could leave you with unwanted debt.
- Assessing how much you’ve saved and asking yourself a few questions can help you decide if you’ve had enough.
You never know when some aspect of your life might implode. You could end up losing your job, getting stuck with expensive home or auto repairs, or being the victim of an injury that not only takes you out of work temporarily, but also leaves you with a pile of medical bills.
That’s why it’s so important to build up an emergency fund and keep that money safe in a savings account. And if you already have money set aside for emergencies, give yourself a well-deserved pat on the back for a job well done.
But is your emergency fund enough to cover your needs? Or should you really force yourself to save more? Read through these key questions to find out.
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1. Can I cover at least three months of expenses with my savings?
If you lose your job, you’ll need money to cover your bills while you look for a new one. And so, to that end, it’s a good idea to have enough money to cover at least three full months of bills, because it can easily take that long to go from unemployment to employment.
To be clear, however, three months is really the minimum number of expenses you should be able to cover with savings. Suze Orman, for example, says you should aim for eight to twelve months of bank bills. So even if you’re at that three-month stage, you might want to aim higher and save more.
You might be able to cover a small home repair by reducing other types of expenses. But for a $5,000 repair, you’ll probably have to dip into your savings. In addition to having enough money to pay three months of bills, if you’re a homeowner, you should boost your savings with extra money to cover an expense like a new air conditioning system or a new roof.
3. Have I saved enough to cover my health insurance deductible?
Your health insurance deductible is the amount you must pay before your insurance company starts covering the bills you accumulate. It is important to have extra money in your savings to cover this deductible, whatever it is. So if, for example, you have an annual deductible of $1,400, your emergency fund should contain at least three months worth of bills plus $1,400 in case you are injured or sick.
4. Do I have enough to cover unexpected car repairs?
Just as home repairs can crop up out of the blue, car repairs can also happen when you least expect them. And so it’s a good idea to top up your emergency savings to cover things like new tires or brakes, or any other issues that could go wrong with your car. This especially applies if you are driving an older vehicle that is no longer covered by any sort of warranty.
Having an emergency fund is one step towards giving yourself the financial security you need. But it’s important to assess your savings and make sure you have enough. And if not, start making changes to free up more money to keep in the bank so you can have the peace of mind you deserve.
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