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Emergency Funds: How Much Money Should You Save In Your Emergency Savings Account? - YouTube
Channel: How To Adult School
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hey there how's it going i'm cory this is the how聽
to adult show and today i am taking on dave ramsey聽聽
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head to head on the topic of how much money should聽
you have in your emergency savings account okay聽聽
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clearly i'm joking i'm not actually speaking聽
with dave today i am still like beyond super聽聽
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small fry in this whole online education sphere聽
and dave would have no interest in talking to me聽聽
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but if you hit that like button and the big old聽
subscribe button down there then maybe one day聽聽
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i'll get there you never know at the very least聽
i will appreciate you and your support forever聽聽
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if you do that because you'll be getting in on聽
the good old ground level and i'll love you for聽聽
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it so today's lesson to help you adult like a pro聽
and manage your finances like a boss is all about聽聽
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emergency savings funds more specifically how much聽
money you should have saved in your emergency fund聽聽
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having a fully funded emergency savings fund and聽
not just a few dollars in one because you know聽聽
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you kind of sort of started one but then you rated聽
it for a vacation and forgot to keep working on it聽聽
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having a fully funded emergency fund is the聽
first step that you should be taking if you聽聽
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want to start to get in control of managing聽
your finances having a fully funded emergency聽聽
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account will give you so much peace of mind聽
it's the best feeling i can't even tell you聽聽
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you will sleep better your stress about money will聽
start to disappear and you'll suddenly find that聽聽
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you're able to make better and more logical聽
financial decisions without all this fear of聽聽
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what if i don't have enough floating around in聽
the back of your mind and scaring the bejesus聽聽
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out of you anytime you even start to think about聽
managing your money it's actually fascinating the聽聽
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mental shift that takes place when you have聽
this this cushion and the safety net of money聽聽
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you get to relax you start to think more clearly聽
and positively your i can's and or i mean i can't聽聽
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and i have to use about money i'll start to聽
switch to i can's and i can choose twos and聽聽
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this is honestly one of the most valuable things聽
that you can ever do for yourself the big question聽聽
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though is how much money do you actually need to聽
have in your individual emergency savings fund so聽聽
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that you can sit back relax and know that you've聽
got it fully funded with the actual amount of聽聽
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money that you need to have in there for your own聽
situation and this is a heavily debated topic in聽聽
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the personal finance world you will find answers聽
ranging from the classic one thousand dollars in聽聽
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emergency fund to the more up-to-date three to six聽
months worth of living expenses fund to the more聽聽
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extreme millennial who's already been burned聽
multiple times in their working life answer of聽聽
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one year's worth of living expenses and the truth聽
is there's no right or wrong answer annoying i聽聽
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know this is something that you have to decide for聽
yourself and today i'm going to walk you through聽聽
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some of the factors that you need to consider as聽
well as how to then calculate how much money you聽聽
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need to have in your individual emergency savings聽
fund the first thing you need to consider is what聽聽
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are the possible things that could go wrong in聽
your life that could derail your income that you聽聽
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would need time and space and a safety net to聽
recover from and also how much time would you聽聽
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theoretically need to bounce back from any of this聽
a common example of something to plan ahead for聽聽
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would be losing your job to go for something super聽
obvious for this this is something that can happen聽聽
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to anyone and everybody should plan ahead to this聽
potentially happening to them at some point in聽聽
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time in their lives if you're young and working a聽
fun and free job like serving in a restaurant or聽聽
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working as a barista then chances are you're in a聽
good spot if you lose your job you'll be able to聽聽
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find a new job that pays you a similar amount in聽
a relatively short period of time if this is the聽聽
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case then maybe you feel safe putting aside three聽
months of living expenses in your emergency fund聽聽
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because realistically you're pretty sure that you聽
can find a comparable job with a comparable salary聽聽
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within a few weeks to a few months tops on the聽
other hand maybe you're working in a highly聽聽
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sought after industry right now like the tech聽
industry you have a higher paying job but you聽聽
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know that there are lots of other high paying聽
jobs available in the industry currently who聽聽
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are looking for candidates can't candidates that聽
candidates just like you right now so again you're聽聽
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confident that you can find another comparable聽
job within a few months and you don't need to have聽聽
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a massive emergency fund to see you through until聽
then as you progress in life maybe you found that聽聽
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you're now a little bit older and your career聽
has progressed to see you working in a really聽聽
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niche industry with a really specific skill set if聽
you lose your job there are other jobs out there聽聽
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but they may not pay as well without having聽
worked up in the company like you've been doing聽聽
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or they may not be the best use of your聽
particular skill set that you've cultivated聽聽
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so you need to search and hunt and wait for a few聽
months longer just for the right job to come along聽聽
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again in this case maybe you judge that six months聽
of living expenses in your emergency account will聽聽
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see you through that eventuality even if you聽
have a three-month fund from your younger years聽聽
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you now need to add to it so that you can buy聽
yourself more time if you need to on the other聽聽
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hand entirely maybe you're like me and you feel聽
more comfortable tucking aside a larger amount聽聽
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in your fund like one year's worth of living聽
expenses maybe you were burned during the pandemic聽聽
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and lost your job in a previously stable industry聽
that dried up overnight because it was deemed聽聽
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non-essential so now you know that you need to be聽
able to have a larger emergency fund to sleep well聽聽
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at night maybe like me you're a young entrepreneur聽
and you don't necessarily have the safety net in聽聽
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place of a traditional job so you want to build聽
your own with a larger emergency fund there are聽聽
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all kinds of lifestyles and jobs and living聽
situations that affect how much you ideally聽聽
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want to have tucked away for a rainy day if聽
you have the option of moving home for a while聽聽
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if things don't go according to plan then you'll聽
need less if you're worried about the potential of聽聽
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injury in your job maybe then you'll potentially聽
need more the goal is that you should start聽聽
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thinking about you and your individual situation聽
and decide what feels best for you keeping in聽聽
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mind that you can always add to it later when you聽
get older if your career changes and actually you聽聽
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should periodically be planning to review your聽
emergency fund over the years and adjust for聽聽
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things like inflation increasing costs of living聽
lifestyle creep when you earn a higher salary聽聽
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things like that so once you've decided how much聽
time you want to buy for yourself with your fund聽聽
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whether that's three months six months a year聽
now you need to know what your monthly living聽聽
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expenses are when we talk about saving for an聽
emergency fund you want to be considering your聽聽
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basic living expenses not all of your living聽
expenses right now so this means expenses that聽聽
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you have to continue paying regardless of whether聽
or not you're currently working bills that just聽聽
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keep coming no matter what this typically include聽
things like rent or mortgage payments grocery聽聽
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bills car insurance life insurance internet for聽
some people and other expenses like that when聽聽
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you're saving for your emergency fund you聽
shouldn't be taxing yourself with the extra聽聽
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chore of saving for extravagances like vacations聽
or beers with the guys or sephora shopping sprees聽聽
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because the idea is that if you find yourself in a聽
tight spot you should be able to cut back on most聽聽
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of your frivolous expenses to get your savings to聽
stretch and last you for as long as possible and聽聽
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also to not totally deplete it for the next time聽
so to calculate your monthly expenses start by聽聽
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making just a list of all of the necessary living聽
expenses you can think of that you have and how聽聽
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much they cost each month then take a look through聽
your credit card statements bank account transfers聽聽
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and other ways that you spend money to just check聽
and see if there are any living expenses that you聽聽
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didn't remember to include in your list yet for聽
example maybe you see a charge for your cleaning聽聽
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at the dentist from two months ago on your credit聽
card statement and this isn't on your list yet but聽聽
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it's an expense that you don't want to go without聽
should you lose your job so it should be on there聽聽
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for expenses that are necessary but that don't聽
occur every month like going to the dentist just聽聽
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average how much you spend on these things on a聽
monthly basis if you spent 400 on the dentist each聽聽
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year then that averages out to about 33 dollars a聽
month next look back through this list and see if聽聽
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there's anything on there listed at all that you聽
would actually stop paying for if you needed to聽聽
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protip netflix subscriptions are a really great聽
example of this they're nice to have but if you聽聽
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lose your job you don't need netflix take these聽
expenses off of your list and then add the rest聽聽
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up to find what your monthly necessary expenses聽
are next step is to take this number and then聽聽
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multiply it by the number of months you聽
want to have saved in your emergency account聽聽
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if you're anything like me when you do this last聽
step don't freak out too much this number is gonna聽聽
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seem really large and really daunting to save聽
at first chances are up until this point you've聽聽
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been largely focused on paying expenses one month聽
at a time and now suddenly you're asking yourself聽聽
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to save up a lot of money and that's completely聽
okay it's totally fine if you feel daunted by it聽聽
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you can do it saving for your emergency fund聽
doesn't always happen quickly actually it聽聽
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doesn't happen quickly let's just say that it聽
took me a long time to save my years worth of聽聽
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living expenses and i kept topping it up after聽
that as my living expenses increased over time聽聽
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it will take a while but it's a really worthwhile聽
goal to set for yourself and quite frankly you're聽聽
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going to be surprised by how much you want to聽
start saving rather than spending your extra聽聽
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dollars when you're comparing this with the carrot聽
of emotional freedom and financial well-being that聽聽
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you're dangling in front of yourself if you're聽
struggling with ways to save this money right now聽聽
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i've created a separate episode all about this聽
called 10 ways to save money quickly for your聽聽
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emergency fund i definitely recommend checking out聽
this episode next because it'll walk you through聽聽
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10 largely unexpected ways that you can make some聽
temporary changes to your life expenses so you聽聽
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can save a bit of extra cash a bit of extra聽
money at a time and get that emergency fund聽聽
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built up quickly meets your goal faster also the聽
other point to mention is that the easiest way to聽聽
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get this money to save up faster is to keep it in聽
a specific type of online bank account called a聽聽
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high interest savings account this is also called聽
ahisa or a high yield savings account sometimes聽聽
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you'll see it called that too and this is an聽
account that's usually offered by online banks聽聽
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they give you a better interest rate than what聽
you're currently earning at your big bank most聽聽
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likely chances are your accounts if you're working聽
with a big bank are probably making around 0.01聽聽
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interest right now and if you switch to a high聽
interest savings account you can likely earn聽聽
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up to 100 times more interest no joke with a聽
basic high interest savings account that today聽聽
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is earning somewhere between one to one point five聽
percent interest um i personally have my emergency聽聽
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fund in a high interest account that's currently聽
earning me around seventy dollars in interest a聽聽
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month which is great quite frankly it adds up and聽
when you're building up that emergency fund every聽聽
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bit helps especially when you're trying to save聽
this account balance up as quickly as possible聽聽
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even if at the beginning you're only earning聽
a dollar extra in interest a month that adds聽聽
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up and every little bit helps so if you like the聽
sound of this and if you want to open up a high聽聽
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interest savings account to get started on your聽
emergency fund the top interest rates are always聽聽
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changing with like a neck and neck raise between聽
some of the top banks so i keep an updated page聽聽
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for you with the best canadian that's key high聽
interest accounts currently on the market if聽聽
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you want to see what those are and open one up for聽
yourself i've included that information link down聽聽
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in the description for this episode and also if聽
you've enjoyed this episode while you're scrolling聽聽
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down to that information you're gonna pass the big聽
red subscribe button if you haven't subscribed yet聽聽
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make sure you just click that on the way by聽
also hit the like button so that turns blue聽聽
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and if you're feeling chatty leave me a comment聽
sharing how much time you ideally want to save聽聽
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for yourself in your emergency fund i'm actually聽
super curious to know how the pandemic has changed聽聽
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has changed people's views on emergency funds i聽
think a lot more people are like me and planning聽聽
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on keeping larger emergency accounts now so聽
just curious to know where you stand on that聽聽
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thank you so much for watching again i'm your聽
host corey this is the how to adult show and i聽聽
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can't wait to see you right back here next聽
monday when we drop a brand new episode
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