Brains Report has already covered that you need to save up $1,000 right now in case of an emergency. And, we’ve given you the resources to create a budget and get out of debt. Now that you have meticulously followed our instructions, what’s next? Simple: you need to bulk up your emergency savings so that it can cover up to six months of expenses.
Let’s Look at Stupid Donald
I know this guy named Donald that goes through life doing stupid things and always ends up in hot water. We are going to use him as an example to illustrate why you need emergency savings. Donald doesn’t have any debt, but he is self-employed and has chronic health problems. He is also the only income earner in his family. At any moment, his life could be turned upside down. What would he do if he lost his work or couldn’t work because of his health? This is where emergency savings is important.
We recommend having up to 6 months of savings in an easy to access checking or money market account. So, if you currently have $3,000 in monthly expenses, you would want $18,000 (6 X $3,000) in your emergency savings. You might be able to get away with less if your household has two, full-time workers with stable jobs (i.e., not self-employed or straight commission jobs). But, with how unstable the world is with the constant stream of hurricanes and everything on fire all the time, the more money you can stockpile, the more stable you will be in an emergency. And, you will avoid the temptation of debt.
Donald Loses Easy Access to His Money
Donald somehow managed to save up six months of expenses, but he likes to play with his money. So, he decided to invest in Bitcoin. Soon after this boner, Donald’s roof sprang a leak and required a quick fix. Unfortunately, the roofers in the area don’t accept Bitcoin, and he wasn’t able to convert it to cash quickly. Plus, the Chinese banned cryptocurrency which caused Bitcoin’s value to plummet. Donald is in a mess. Don’t be like Donald: put your emergency savings in an easy-to-access account and forget about it until you have an emergency.
What is an emergency? Emergencies are necessary, urgent, and unexpected. If it isn’t necessary, then you don’t need to spend money on it. If it isn’t urgent, you can create a sinking fund. And, if it isn’t unexpected, then you should have already been saving for it.
Is all of this confusing? Please leave a comment below, and we’ll try to mansplain better.