You don’t have any emergency savings. If an emergency expense dropped into your lap this very minute, you don’t think you could pay it off.
You’re not the only person who is in this precarious position. According to the Federal Reserve, only 68% of Americans believe that they can handle a $400 surprise expense right away. They stated that they would use cash, personal savings or a credit card that they could pay off before the billing cycle ended. The remaining 32% of Americans surveyed admitted that they wouldn’t be able to pay off that expense with cash or savings. They would have to turn to an alternative solution like borrowing funds to resolve the problem.
If you ever need to borrow funds to cover a small surprise expense, you can use your credit card and slowly pay down the balance over several billing cycles. Or you could try to apply for a personal line of credit online as long as you fit all of the eligibility requirements. With a personal line of credit, you can request a withdrawal within your credit limit. That withdrawal could be deposited into your bank account, giving you easy access to the temporary funds that you need to pay off your surprise expense. Once you cover the expense, you can follow a repayment plan for your line of credit loan. You’ll pay everything back bit by bit until the entire ordeal is behind you.
While these borrowing options can help you handle surprise expenses, they’re not your ideal solutions. Having a stash of emergency savings is much better. Your savings will be convenient and easily accessible, and they won’t come with repayment plans.
So, how much should you save up for emergencies?
A little bit in an emergency fund is better than nothing at all. Collecting as much as $500 in a savings account can be extremely useful. You can use this moderate sum to handle all types of small emergencies in a flash.
If your home’s plumbing goes on the fritz, you can use your savings to hire a plumber for a simple repair. The average cost for toilet repair is between $100-$300. The average cost for clearing a drain clog is between $100-$500. The average cost for repairing a leaking pipe is between $150-$450. Your emergency fund could help you cover one of those repairs!
Or maybe your HVAC system will need fixing. The average cost of HVAC repair is $350. You’ll be thankful to have $500 in your fund when you need to fix your AC unit before a heat wave turns your home into an oven.
What other emergencies can $500 help with?
- Appliance repairs
- Smartphone repairs
- Small car repairs
- Minor dental treatments
- Minor veterinary treatments
Once you reach the $500 mark, keep saving. You’ll want to build up a considerable safety net for larger emergencies, like major home repairs and appliance replacements. With enough money saved up, you can even handle life upheavals like losing your job or falling ill.
So, how much should you save up?
A general rule of thumb is to save between 3 to 6 months’ worth of your expenses in your emergency fund. If you can afford to, increase those savings to 9 to 12 months’ worth of expenses. Then you’ll be able to withstand just about any financial disaster that comes your way.
If your emergency fund is completely empty, this is your sign to change that. Start filling it up! It’s time for you to add savings to it and build yourself a strong safety net.