- The Federal Reserve found that 40 percent of adults in the United States can’t afford a $400 emergency.
- This is alarming for many reasons, but chief among them is that common emergencies (a car repair, a hot water heater or furnace replacement or an emergency room visit, for instance) tend to be well over the $400 mark.
- Without money in savings to cover unexpected costs, a person could wind up in a worse spot than they’re already in — racking up a pile of debt.
Saving for emergencies has been extremely difficult for most Americans due to a number of factors: high cost of living, debt, living paycheck to paycheck, etc. In a recent survey from GOBankingRates, just over 5,000 people were asked about their savings habits, and the results were startling. Thirty-two percent of respondents had $0 in savings. And 26 percent had less than $1,000.
A 2016 report found that the average cost of an emergency room visit is $1,917, a 31 percent increase from 2012. That means at least 58 percent of adults in the United States cannot afford an unexpected trip to the hospital. Unfortunately, the randomness of the world doesn’t check in with you before sending a family member tumbling down the stairs, landing with a broken bone, or throwing any another kind of nightmare your way. Emergencies happen all the time.
Read More: I Was Laid Off Twice in One Year
What You Actually Should Have Saved
Clearly, more than $0 in savings is a good thing, but how do you know exactly how much you should be saving?
If You’re Employed Full-Time …
For most people with stable, full-time jobs, the target should be to have at least three to six months of expenses in your savings account.
Forgetting about your income for a moment, look just at what you spend on the average month. Add up housing, food, transportation, recurring bills and other monthly costs to get an idea of your expenses. If you stick to a budget, you already have these numbers handy. Multiply that by three to get a low estimate and by six to get a high estimate of what you should have saved.
Layoffs and unexpected job losses happen, so you should always be ready to cover the bills without credit cards for at least a few months. This is in addition to having cash ready for other unexpected emergencies.
More on Expecting the Unexpected: Here’s How Much Americans Have Saved for Emergencies in Every State
If You’re Self-Employed Like Me …
Though working for yourself offers a wonderful opportunity for freedom and a bigger income, it also comes with a lot of risk. You never know when an emergency will strike — a major client or customer could walk away or the economy might turn downward. This means that the typical three-to-six months’ expenses rule doesn’t suffice. If you work for yourself, you should actually double the emergency fund of those with a stable job.
Do You Know? How to Save for Retirement When You’re Self-Employed
I quit my job in April 2016 for full-time self-employment. Consequently, I have targeted a six to 12-month emergency fund for my family’s needs. Hopefully, things continue to go well, and I’ll never have to tap into my sizeable cash savings. However, I can also sleep easy knowing that if something does go wrong, I can survive just fine without earning a dollar for at least half a year.
No matter if you’re employed or self-employed, with the right emergency savings, you can weather any storm that comes your way.
Read More: When to Use Your Emergency Fund
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