How Much Money Should I Save?
April 24th, 2006 | by Molly's Brother |I’ve quickly understood that my path to financial freedom is not going to come through a savings account (even one with a higher yield like ING Direct or HSBC, which have Annual Percentage Yields at 8 times the national average). However, creating ample savings is a crucial step in eliminating financial chaos in your life.
An Emergency Fund–What Is It? How Much Should It Have?
From what I have read, this step should be two-tiered. Most people go into serious debt, because they found themselves in cash crunch after cash crunch. A way to eliminate this, is to get an emergency fund set up immediately.
Even though I knew better, I was not a person who saved money. I spent nearly everything I made and then, at the end of the month, wondered where it all went. But, after talking to family and friends, I found out that I needed to get money into an emergency fund…FAST! So I went about doing just that. I used a promotional check that was sent by an online bank and started my emergency fund. (I would not suggest you do this unless you don’t think you’ll need the money for 3-5 days.) You should build your emergency fund in two phases:
1. GET THE MONEY IN THERE–FAST
From what I have read–and from those of you who follow Dave Ramsey, he calls this his “baby emergency fund”–you should aim at getting $1000 in a savings account that you could tap into. For those of us who might be a little more financially strapped, I think an account with $500 to $1000 would suffice. As a first step.
2. A 3 to 6 Month Emergency Fund
Most financial planners will tell you to then build an “emergency fund” that is anywhere from 3 to 6 months of your living expenses. This is in case you lose your job and it might take you another six months to find a new one.
