America Saves Week: Saving for a Rainy Day

America Saves Week.png

Emergency savings are a crucial part of financial planning. The recommendation is that you should have enough money to cover 3-6 months of necessary expenses should a worse case scenario happen. Saving that amount of money isn't easy but it's not impossible.

However, determining what are necessary expenses is crucial to figuring out how much money your emergency fund should have.

A necessary expense or a need as it is called in budgeting terms is something that is essential to your life like food, shelter or transportation. An unnecessary expense or want in budgeting terms is something that isn't essential like designer clothes, visiting an amusement park or pricey cabs.

Once you have sorted your wants and your needs, add up how much you spend on your needs every month. As was said in the beginning, it is often recommended that you have 3-6 months worth of funds to cover these expenses. CNBC personality Suze Orman even argues that 8 months should be the goal.

The video below is a great way to start teaching kids how to differentiate needs and wants. Nerdwallet also has a great piece on how to get started on an emergency fund.

Emergency Fund: What It Is and Where to Keep It - NerdWallet

An emergency fund is a bank account with money set aside to cover large, unexpected expenses, such as a major auto repair, or a financial crisis, such as job loss or large medical bills. " Use the NerdWallet emergency fund calculator at the end of this article for a personalized recommendation on how big your fund should be.