Absorbing Financial Shocks
It is recommended that you have enough savings to cover three to six months of basic living expenses if you lose your job or can’t work due to illness, injury or other factors.
Financial shocks come in many forms: home or car repairs, temporary loss of income and medical emergencies, just to name a few. Would your current income be enough? If you change jobs, would your new income help or hinder your efforts to absorb income shocks
Surviving Financial Shocks
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Do you have $500 or more readily available to cover emergencies?
In a survey by the Federal Reserve, only 44 percent of respondents said they could cover an expense of $400 without borrowing or selling something. Research has shown that households with emergency savings below $500 are more prone to worry, loss of sleep and other ill effects than households with more savings.
Do you know the total amount of your monthly financial obligations?
When starting an emergency savings fund, first calculate your monthly basic expenses to know how much you would need to cover your household if you had no income. Even if you only can save a little bit at first, start saving.
Do you have quick access to enough money to cover three to six months of expenses in case you lost your income or had fluctuations in your employment?
While it might seem like a lot, ideally you should be able to cover three to six months of your family’s basic expenses in case your income drops or needs to be used for large unplanned expenses. Having enough money in reserve is crucial to managing unplanned financial challenges.
Do you regularly add money to your savings?
As you plan to cover necessary monthly expenses, consider how a sustainable wage allows room to set aside money for emergencies. Also use some or all windfall money — such as bonuses, wage increases or tax refunds — to build an emergency fund.
Analyze Your Expenses and Create a Spending Plan
Need to get a handle on your expenses to establish an emergency fund? SAM’s course in Money Basics: Spending and Saving
can get you started with categorizing your wants and needs, identifying monthly expenses and creating a spending plan.