When it comes to emergencies, they are never expected, and often times they arise during the worst possible moment. When it comes down to it, not having funds for an emergency is far more stressful than saving for the emergency itself. With that being said, on our blog today we’re discussing emergency funds and how much should be in them. It may not be a fun topic, but it is a necessary one!
Financial disasters can often sprout from thinking that it’ll be okay to put a hefty cost on your credit card, but this leads to paying interest on an already large expense, and stressing out over when you’ll be able actually pay it off. That’s where an emergency fund can allow you to be prepared for the unexpected. Today, we’re breaking down how much should be in your emergency fund.
A typical home repair emergency fund has between 1-3 percent of the home’s value. Every situation varies depending on your home and other various factors, but generally, 1-3 percent of your home’s value should cover a repair. When it comes to emergency funds, there are two different branches that you should prepare for. The first being a general emergency fund and the other a dire emergency fund. In the general, you should be preparing for things that are everyday emergencies. That may entail your air conditioning or boiler failing on you, or more simply big expenses for items that you may be using everyday. Aim to have about 10% of your annual budget stowed away in this fund.
Now in the dire emergency fund, try to put about 20% of your yearly wages. This could cover bigger scenarios such as flooding from a storm, a tree branch falling on your roof, or even a more life changing scenario such as being laid off or suffering an injury. These costs can be huge expenses, and it’s always wise to prepare yourself while an emergency is still irrelevant. Both of these numbers are significant, but setting aside money weekly will get you closer to your goal. It is an intimidating and gloomy fund to have to start, but you’ll be very relieved when a situation arises and you already have funds set aside.