In my first session with clients, when they identify having a financial goal of creating an Emergency Savings Account, we first talk about what is important to them about that goal. I ask, "How would that feel to have that money saved?" Some of the responses I hear are "I would feel less stressed. I would be happy that I had the money to take care of my family and the bills. I would feel that I accomplished something I set out to do." That importance is what motivates them to save.
The Rule of Thumb we discuss is to save at least:
- three months (when you have someone else's income you can rely on) of monthly household expenses and bills which include putting money into savings
OR
- six months (when you only have your income) of monthly household expenses and bills which include putting money into savings
The Emergency Savings Account is to be used only in an emergency which is defined as your income ceases or decreases. Our income can stop or decrease yet our monthly household expenses and bills do not stop.
COVID-19 is one of those situations when having an Emergency Savings Account helps with the financial stress of having little or no income coming in. When I heard on the news that so many individuals were getting laid off, furloughed, and getting their hours cut, my first thought was that I hoped they had some kind of savings to rely on.
Our world has changed due to this health crisis. We do not know what the future brings. Whatever you can save that is realistic and comfortable on a regular basis even if it is $1, $5, $10, $20 or more, put it towards your Emergency Savings Account.
