How to build a solid emergency fund in 2024

Unexpected expenses happen to everyone, and they happen often. According to the Federal Reserve, 20% of adults have experienced a large unexpected medical expense in the past year, with the median cost ranging from $1,000 to $1,999. Almost one in six adults has been affected by a natural disaster that damaged property or disrupted income. These are just two of the many potential problems that can go wrong, in addition to common problems such as car or appliance breakdowns and job loss.

To prevent these unexpected expenses from causing long-term financial damage, you need an emergency fund. But how do you do it? Here are the steps you need to take:

1. Assess your risk level and set your emergency fund goals

If you want a solid emergency fund, decide what that means to you. Most experts recommend having three to six months’ worth of living expenses saved. But that’s a big range. Therefore, you need to assess how much risk you face to determine if you fall within that range. To do so, consider these important questions:

• How solid is your job? If you’re the CEO of your own company that you’ve been running for 20 years, you’re much less likely to experience a drop in income than if you’re a new employee in an industry that sees a lot of layoffs.
• How long will it take to find another job? The longer your job search takes, the greater the risks you face. If you have a highly specialized job that is likely to be in high demand, you are at less risk than if you work in a field where there are too many trained workers and not enough positions.
• How is your body feeling? If you are at high risk of getting sick or your illness lasts for a long time, you may need to set aside more funds.
• What are the chances of incurring expensive repair costs? Some people are more likely to have to pay higher bills for essentials than others. For example, if you’re a renter without a car in a big city, you’ll have much less to worry about than if you’re the owner of a 100-year-old suburban home with few reservations.

If you are at the higher end of the risk scale and are likely to face large bills or long-term loss of income, you will need 6 months’ worth of living expenses, and possibly 9 to 12 months’ worth of living expenses. Masu. If you face very little risk, a three-month fund is probably sufficient.

2. Calculate your living expenses

Please note that the goal is to replace the product for a certain number of months. Cost of living. This isn’t necessarily the entirety of your spending. If you have to cut back on certain things because of job loss or health issues, you can cut back.

When totaling up your living expenses, include things like:

• rent or mortgage payment
• Pay off all debts including credit cards and car loans
• public works
• Transportation costs
• groceries
• Insurance fee
• personal care items
• Medical bills
• mobile phone

You don’t need to include the entire amount you currently spend on dining out, entertainment, or vacation funds. However, you’ll want to have a little extra so you don’t have to live in complete poverty while unemployed. For a while.

Once you have totaled up your required living expenses, multiply that amount by the number of months you think is appropriate. For example, if your monthly essential living expenses total $4,500 and you need three months of living expenses, you should set a goal to save $13,500.

Related: emergency fund calculator

3. Calculate how much you want to put aside into your emergency fund each month.

You probably won’t be able to save every dollar you need for your emergency fund right away, so set a monthly savings goal. intention Save towards it. Ideally, you can set a goal big enough to reach your target value in 2024. If you want to save $13,500, you’ll need to deposit $1,125 into your account every month.

Look at your budget and see how much you can set aside. If that’s not possible at all, try to get as close as possible. Either cut some other expenses (remember, this is only for a short period of time) or consider a side hustle to temporarily increase your income until you have enough savings.

Be sure to set specific goals.If that goal have If you don’t get the number you want, see if you can save a windfall or sell items to make up the difference. For example, if he decides to only put $900 into his emergency fund each month instead of $1,125, he would be $2,700 short of having the money he needs by the end of 2024. But if you deposit your tax refund, you can get a few pieces of cash. Earnings from birthday gifts or the sale of old electronics may help supplement that money and help you reach your goal.

4. Move your money into high-yield savings

Finally, the last step is to set up a high-yield savings account to hold your emergency fund and set up automatic transfers of funds into it.

Emergency money should be moved to savings to avoid the risk of losing it. Then you need to automate the transfer of the desired amount to that account. That way, the money will be transferred to that account on the day you receive your paycheck, and you won’t miss any contributions. That way, you won’t be tempted to do other things with your emergency money.

With these four steps, you can build the emergency fund you need in 2024 and end the year with the financial security you deserve.

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