Your savings account is your emergency fund. How much should you have? I’m not asking about your retirement or investment fund – I’m asking about your standard savings account. You probably don’t want to hear my answer, but I believe we all should have a year’s worth of income in savings.
That amount could tide you over if you lost your job, were laid off, or had to take a medical leave of absence. In the past I might have recommended 6 months, but you may have a harder time finding a replacement job in these economic times.
So how do you save 12 months worth of income? For most people it means cutting back. Try going over your bank statements to see where the money is leaking away. Are you spending $20 a day on fast food? $100 a month on cable services? $50 on parking? I’m sure you can think of other expenses that you could temporarily go without.
On the other hand, if you’ve cut your spending to the bone and still can’t save money, then look for extra income. Try getting a part time job, or selling unwanted items for cash. If you make the extra sacrifice now, you could have a sizeable savings account in a few years – one that could save you in an emergency.