Expert generally speaking Your emergency savings should cover three to six months of living expenses. But after years of high inflation, this goal may seem far from attainable for many Americans.
In fact, nearly one in four U.S. adults say they have no emergency savings. Recent bank rate survey revealed.
If you’re starting your emergency fund from scratch, don’t be intimidated by the idea of saving several months’ worth of expenses at once, says certified financial planner Will Keller, partner and lead advisor. human investment.
“Emergency savings requires an individualized approach,” he says. “Conventional wisdom recommends having three to six months worth of living expenses, but I would argue that any amount is better than nothing.”
Keller recommends breaking your emergency savings goals into bite-sized chunks and celebrating wins whenever you can. Start by setting aside $50 to $100 a month and work towards saving one month’s worth of living expenses, he says. Keller says this is a solid starting point.
“A full month’s worth of expenses acts as a buffer against the immediate shock, giving you the cushion to weather the crisis without going into debt,” he says. “I encourage everyone to prioritize this modest but important goal, regardless of their financial situation.”
Why now is a good time to build an emergency fund
meanwhile 63% of Americans “While some say rising costs are cutting into savings, a series of rate hikes by the Federal Reserve have given banks the most attractive interest rates in years,” said Mark Hamrick, senior economic analyst at Bankrate. “This means that we are providing savings to savers.”
“One of the benefits of that is that people who shop for the best yield are in an environment where they can get 4% or 5%.” [annual percentage yield] I use a variety of savings products,” he says.
In a traditional savings account, Average interest rate 0.46%many high-yield savings accounts have interest rates of 4% or higher; Grow your savings faster. These interest rates, also known as annual percentage yield (APY), fluctuate depending on the Federal Reserve’s benchmark interest rate.
certificate of depositor CDs also have higher APYs than traditional savings accounts, with top CD rates starting at 4.45% to 5.50%, according to Bankrate. A CD is a type of savings account where money is deposited with you at a fixed interest rate for a predefined period of time and cannot be withdrawn prematurely without incurring penalties.
No matter what savings vehicle you choose for your emergency fund, Keller says it’s better to have something put away than nothing.
“Essentially, there is no universal formula for emergency savings,” he says. “Having a certain amount of cash can protect a person’s financial well-being and protect them from jeopardizing what they have worked so hard to build.”
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