Jessie’s Excellent Financial Adventure: In Case of Emergency

It's easy to remember my first grade teacher shouting: "Stop, drop and roll!" And living in the Bay Area has forced me to remember what to do in the event of an earthquake. But what to do in the event of a financial emergency? I don't remember hearing that.

Approximately 64% of Americans don't have enough cash on hand to handle a $1,000 financial emergency . While that's a scary statistic, part of the problem is that experts don't agree on how much is enough when it comes to an emergency fund. Some say you need an entire year's salary on hand. Others say 3 to 6 months' salary. Some say $1,000.

So which one is it, and how do you know how much you need? The answer is certainly going to vary from person to person. But to figure out how much to save, it helps to consider a few key questions:

  • Am I in a stable job/industry? How much volatility is there in hiring and firing at my company? The most common reason you need an emergency fund is due to job loss. In my case, while financial services isn't the safest place to be, BlackRock is a 25-year old company with an established employee base.
  • What are my non-negotiable monthly expenses? If I lost my job, I'd still have bills to pay. How much are those monthly bills?
  • What's my insurance coverage? Your guess is as good as mine in terms of what a health emergency or major home repair would cost. But the financial risk of many emergencies can be mitigated with good insurance-health, auto and home. I've realized I need better auto insurance. Do you?
  • What are my debt obligations? I have student debt, but no mortgage or credit card debt. If you do, your emergency fund should cover a few months' worth of your debt payments.

Some people need to set more money aside because they work in a volatile industry (like oil and gas), have poor insurance coverage, or have major, locked-in expenses (like a hefty house payment).

I've made a commitment to myself to keep my financial life as flexible as possible . That means not taking on a mortgage I can't afford, but it also means I want to be able to withstand job loss.

So, in my case, I'm going to multiply my non-negotiable monthly expenses by 3 to get to my magic number. Then, I'm going to set aside some money each month to slowly accumulate what I need.

But now for the really hard part: Where on earth can that money come from? And where do I put it once I have it? A topic to consider this week, and the subject of my next post. Stay tuned!

Want to follow my financial journey? Check out my other recent postshere.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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