My oven broke. Can I afford to fix it?
When disaster strikes, it pays to have money on hand to handle the financial part of the problem. That’s why an emergency fund is considered an essential of healthy personal finances. Emergencies might be losing a job (or having work hours cut back), being diagnosed with an unexpected health problem or an essential appliance in the home breaking down. Some refer to emergency funds as “rainy day savings”, because the cash is used when times get tough.
One month wages is unlikely to be enough
The eZonomics article What is … an emergency fund explains that experts suggest three to six months of take home pay is a decent size for an emergency fund. However, there is no agreed single figure. The exact amount will depend on how much an individual spends, if they have dependents, a mortgage, insurances and other factors. Job security is also a factor. The 11% of respondents to this poll who think a month’s wages is enough might find themselves short.
Building good savings habits
Our video How much should I be saving? explains how to make a basic budget, work out how much money is available to put into savings and form good money habits. A difficult situation can arise if people have debt and have to weigh up the benefits of paying off debt against saving for emergencies. A separate eZonomics poll helps answer this dilemma.