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One major thing Americans are wrong about emergency savings

Do you have enough or too much savings?

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Experts unanimously agree that having an emergency savings fund is essential. And most say you should save about 6-9 months of expenses in this emergency fund. But there’s a crucial detail in that claim that we often don’t hear about: the pros say that actually having 6 to 9 months of essential Spending from this emergency fund is sufficient, as it will protect you if this emergency occurs.

“Emergency savings are not for discretionary spending, but for basic needs that need to be paid for in case you lose your job or your ability to work. Your emergency fund would pay for food, housing, healthcare and gasoline,” says Brian Hamilton, founder of ONE, an online-only financial institution. And Bobbi Rebell, author of Start Financial Adults and personal finance expert at Tally, an automated debt management app, notes that, “You always want to have enough cash on hand or access to liquid assets that can cover your basic expenses.” non-negotiable expenses, such as rent or mortgage payments,” says Bobbi Rebell, author of Launching Financial Grownups and personal finance expert at Tally.

So how do you determine what your essential expenses are? Rebell says you should think about everything you absolutely need, like food, insurance or childcare. “You may think, for example, that you need cable TV, but you don’t. You probably need internet service, because without it you probably can’t work or be in contact with your employer or potential employers,” says Rebell.

Another way to think about what you need for your emergency fund is to think about the bills you would still have to pay if you lost your job. “If you found out tomorrow that your employer went bankrupt and they can’t give you another paycheck, what expenses will you still have to pay? Paying for the gym, memberships, cable, and any luxuries or non-essential expenses that you might cut back on if needed shouldn’t be included in your calculations,” says Lauren Anastasio, director of financial advice for the app. Stash personal finance.

That said, even if you don’t lose your job, emergencies and semi-emergencies do happen. “Maybe your fridge breaks down and needs to be replaced, or your car breaks down and isn’t covered by insurance, or you or your child get sick and need expensive medical attention. An emergency fund is meant to cover emergencies only, and everyone needs it,” Hamilton says.

How much you should have saved depends on what makes you comfortable, so if nine months is right for you, then that would be your benchmark. “If the money is just sitting in a savings account and not invested, given the rate of inflation versus what you’re getting in interest income from that savings account, it loses value,” says Rebell. This is one reason why you shouldn’t just put all your money into savings – you want your money to work for you. Sure, more than six months allows for more flexibility, but it’s not necessarily essential and is considered out of reach for many Americans.

Anastasio says that if you’re a renter, three months of savings is fine, especially if you have highly marketable skills or are part of a two-income household with no children. “Six months is more appropriate for homeowners, single-income households, and anyone who has others who rely on them for financial support,” says Anastasio.

How to save more money

To help you save more to reach that critical savings threshold, using automation services can be beneficial. “The less you have to do proactively, the more likely you are to succeed,” says Rebell. Anastasio says a good practice is to ask your employer or payroll department to send a percentage of your salary directly to a separate savings account.

Another thing you can do to earn extra money is to consider spring cleaning your unwanted effects. “You probably have older versions of electronics that still have value. You can usually sell them easily and add the money to your savings. You can even sell gift cards that you don’t use for a part of their face value,” says Rebell.

Reducing additional fees can also save you money that can be repositioned in an emergency savings account. “There are many hidden fees and costs that you may not realize, and they hit hard when money gets tight. Consider overdraft fees: The average household pays $250 a year in overdraft fees. Many digital banks don’t charge for these and it’s worth asking your bank what their policy is,” says Hamilton.

Taking a side hustle is another way to earn some cash that you can save. “Delivery and ride-sharing apps make it easier. Consider doing some extra work to help you build up your savings account. You just need to factor in the expenses, namely gas and wear and tear on your car, to make sure the benefits are worth it,” says Rebell.

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