10 Signs that You May Not Be Saving Enough for an Emergency
None of us want to be in that place where you don’t have enough money to pay for an unexpected expense. Unexpected expenses range from seriously steep home repair costs to minor medical bills and everything in between.
While it’s unreasonable to expect that everyone should be able to shell out $30,000 for a new roof without advanced notice, everyone should have at least some money set set aside for that rainy day…
Cash that can be used to cover unexpected life events can fall into two categories: an emergency fund, and a “rainy day” fund.
An emergency fund should be sufficient enough to cover your monthly living expenses for at least three months in order to sustain your living habits after losing a job, divorce or medical leave.
On the other hand, a rainy day fund is an amount of money set aside to cover one-time surprises, such as a car accident, home damage, or last-minute mandatory travel arrangements.
An ideal amount to have saved up for this emergency fund is somewhere between 9-14% of your annual income, or roughly one month of pay.
Do you have a rainy day fund and/or an emergency fund set aside? Here are ten signs that you may not be saving enough.
Sign #1: Stress
Does the thought of something like fender bender or a broken toilet send shivers down your spine or induce waves of nausea? Unless it’s because you hate parting with your beloved cash as much as that twisted goblin character from The Lord of the Rings couldn’t part from his precious, your sick feeling about the very thought of an unexpected mishap is probably because you believe that you wouldn’t be able to cover such a surprise expense comfortable—if at all.
Sign #2: Fluctuating Income
If you’re self employed, especially in some careers that see seasonal fluctuations, you may need a larger amount of savings to cover your “slower” periods. By comparison, if a salaried worker experiences a mishap, they can dip into their savings and cover that expense, while continuing to enjoy the benefits of their consistent paycheck.
On the other hand, if you’re making your own bread and flour, and it is unusually tight this month, then it will be helpful to have enough money to cover that expense and continue paying your bills.
Sign #3: Ongoing Health Issues
Nobody likes to deal with the pain, suffering, and general difficulty that comes with ongoing health issues. However, if those health issues are ongoing, or are severe enough to take a significant amount of time off work, then the combination of incurring medical expenses and a loss of wages could be a recipe for disaster for you and your family. Throw an unexpected expense into the mix, and suddenly paying for things becomes next to impossible.
Sign #4: You Fly Solo…at Least When it Comes to that Cheddar
If you’re the main or sole income earner in a home with multiple dependents (that’s usually a spouse and children for all those who don’t speak legalese), then you might want to consider having more money set aside for emergencies.
While an emergency fund is great to cover unexpected expenses for a single person or even a couple, the more people you have in your household, the more chances there are for unexpected events to happen to one of them, leaving you more prone to multiple surprises that impact your finances.
Sign #5: You Don’t Have so Many Eggs in the Investment Basket
If you’re lucky enough to have wealth-generating sources of income to supplement earnings from work, or that perhaps make up your entire income, you know that if your wages go south or something unexpected comes up, a renter’s check, stock dividends, or business earnings will come through to help you out.
However, if you don’t have any cash cows on the range, you might want to consider saving up a little more. Not only will you have less ongoing financial security, but you’ll probably have less assets to put up as collateral or security for a loan, or even sell off for needed cash if the situation calls for it.
Sign #6: Your Credit is Not So Good
A person’s credit score is one of those mysterious formulas privy only to the secret and elite society of the credit bureaus, but it’s more than possible to easily get a grasp of your overall credit situation. Unexpected expenses can be easily absorbed by credit cards, and many banks will even give out 0% promotions for a fixed period of time to new clients with good or great credit.
But if you’re balances are high, you don’t really have space to put unexpected expenses. Even worse, you might be paying high amounts of interest, which leaves you less cash to expect the unexpected.
Sign #7: You Don’t Budget
You may be well aware of how much money you’re bringing in, especially if you’re salaried, but you probably don’t know how much of it is going out of your wallet to fund coffee, lunch out, and lottery tickets—just to name a few small luxury items that can quickly add up.
Chances are that you can probably cut some of these expenses, leaving you with more money to put aside for an emergency fund.
Consider using one of the numerous accounting and budgeting tools or apps now available to consumers that facilitates a detailed method for tracking spending, creating opportunities to spot chances for cutting costs and increasing savings.
Sign #8: You’re Living Paycheck to Paycheck
While this situation describes many Americans, it’s far from ideal. If you’re living from paycheck to paycheck, you may be spending too much, and/ or not bringing enough money in.
Working on one or both of these areas through budgeting or professional development can widen the gap between your monthly bills (rent, mortgage, utilities, credit cards, and so on) and your income with a positive number, which can then be transitioned to a savings account.
Sign #9: You Don’t Have Goals
If you don’t have specific goals for your life, chances are you may not be focused on putting money aside. If, on the other hand, you know you want to upgrade vehicles, move into a larger home, or retire at a specific age, then you’ll be geared up with a plan that can be followed. Resulting in a greater likelihood of setting money aside.
Otherwise you may just make every impulse purchase you feel like, from a candy bar to a Caribbean vacation, just because you can, leaving you with little money to put away.
Sign #10: You Don’t Even Have an Emergency Fund
This last sign is so obvious, you might think we’d skip it entirely, but it’s worthy of explicit mention. One of the biggest culprits that facilitate this warning sign is that you may have actually indeed had a savings account, but it was too accessible. Whenever the need arose for something you wanted, you took money out of it, thinking you could replenish it later. The problem with that thinking is unexpected emergencies.
Imagine this scenario: You could take $100 out of your emergency fund to cover concert tickets for that band you’ve always loved and just so happens to be coming to your city on tour, but then on your way to the concert, you could get into a fender bender necessitating a $1500 repair.
A good way to deal with this problem is set aside money and create clear criteria for withdrawing it, such as medical expenses, necessary (non-cosmetic) home repair, or mortgage payments in the event of a job loss.
There are many warning signs that may indicate you’re not saving enough. Take a look over the categories we’ve mentioned and see if any apply to you. If they do, consider what you can do to make changes so that you’re able to set money aside.
If you don’t have a rainy day fund at all, start with the goal of accumulating $1,000, but remember you don’t have to do that overnight. Optimally you should aim to have one month of your annual income saved up for a rainy day fund, and three months of living expenses set aside for an emergency fund, with clear expectations about what these accounts are for and not for.
While there’s never a way to expect the unexpected, there are ways to respond successfully and get back on your feet.