Should your emergency fund include only essential expenses?
Image source: Getty Images
Mine certainly goes above and beyond.
Key points
- You will often hear that your emergency fund should cover at least three months of essential expenses.
- My emergency fund also contains money for non-essential purchases.
You never know when life might throw you a curveball. Your home heating system could stop working on the coldest day of the year, or your car could break down and need an expensive repair without warning. Or, you could lose your job and see your income limited to meager unemployment checks for a while while you look for work.
It is for all these reasons that it is so important to have an emergency fund. Without money in your savings account, you could be forced into debt the moment an unexpected expense arises.
Now, you’ll usually hear that you should have enough money in emergency savings to cover three to six months of essential expenses. And in fact, these days, some financial experts are advising people to increase that goal to six to 12 months of essential bills.
But my emergency fund goes beyond essential expenses. He also has money for non-essential expenses. And you might want to take a similar path.
These are reasonable expectations
There’s a reason financial experts tell you to set aside enough money to cover essential bills. In a pinch, you can always cancel cable or stop dining out if you’re out of work. But you can’t stop buying groceries, paying for your medicine, and covering your rent or mortgage because you need to eat, stay healthy, and have a roof over your head. your head.
But when I calculated my emergency fund, I included money not only for essential expenses, but also for some non-essential expenses. The logic here is simple. If I lost my job, I don’t think it would be reasonable for me to spend my days enjoying zero entertainment while looking for work. And so there’s money in my emergency fund to allow me to continue paying for things like cable, streaming services, and even the occasional restaurant meal in a scenario where I have no income. .
Now, if you’ve calculated your emergency fund and saved enough money to cover your essential bills for several months, you’re in pretty good shape. But you may want to increase your cash reserves so that if you find yourself out of work and living off your savings, you still have the opportunity to socialize occasionally, be entertained, and maintain your sanity.
Time to relaunch those numbers?
If it’s been a while since you’ve built up your emergency fund, now is a good time to review your savings and make sure you have enough cash reserves. Remember that the cost of living is on the rise these days due to inflation, so even if you think you have enough money to cover six months of essential bills, you might, in reality, not only have it for five months.
But while you are doing this, see if you are able to increase your savings so that you have money to cover non-essential expenses in the event of job loss. It could make an otherwise difficult time much easier.
Alert: The highest cash back card we’ve seen now has 0% introductory APR until almost 2024
If you use the wrong credit or debit card, it could cost you dearly. Our expert loves this top pick, which features an introductory APR of 0% until nearly 2024, an insane payout rate of up to 5%, and all with no annual fee.
In fact, this map is so good that our expert even uses it personally. Click here to read our full review for free and apply in just 2 minutes.
Read our free review
Leave a Comment