Planning for retirement is important: investing small amounts over a long period of time helps you far more than trying to set aside large amounts with little time left before you need the funds. But retirement is not the only thing you need to plan for. Unexpected bills — including medical issues, broken refrigerators or costly automotive repairs — are a factor smart planners need to prepare for, as are family needs, vacations and personal goals.
So how much should you have on hand in case of emergencies? Below, seven experts from the Forbes Finance Council share what they advise people set aside into savings.
1. Enough For An Emergency Fund
Emergency expenses happen when you least expect them (like your roof suddenly needing repair). That's why I tell clients they should have 6-8 months of living expenses saved up before investing. That way, you don't have to take on debt or suddenly withdraw from your investments on a rainy day. As big of a waste as savings accounts are, you'll need this safety net before growing your wealth. - Elle Kaplan, LexION Capital
2. Between Three And Six Months
A lot depends on the stability of the individual's job, if they are self-employed, and so on. Going through the financial planning process is always ideal in determining the best number. However, as a rule of thumb, we like to recommend that if an individual is single, they should save six months of expenses. If married and both spouses are working, then save 3 months worth of expenses. - Amir Eyal, Mylestone Plans LLC
3. Aim For 12 Months
Retirement savings will help you in 10-30 years, but it won't help you tomorrow. Whether you lose your job, have an unplanned child, or unexpected medical bills, it is never a bad idea to have some money in your savings account for the rainy day. It may take time to build up the buffer, but aim to put aside 12 months' expenses. Saving more means spending less, which is key if it doesn't rain, but pours. - Atish Davda, EquityZen
4. Look At The Type Of Work You Do
Life will throw curves at you. Traditional financial planning tells us to set aside six months of expenses. I believe the stability of your job is a better indicator. If your profession has traditionally exhibited volatility, such as marketing or sales, perhaps 10 to 12 months is more prudent. On the other hand, if your profession is stable such as government employment, six months may suffice. - Andy Barkate MS, California Retirement Plans
5. Allocate 30% To 40% Of Income To Savings And Investments
An emergency savings fund and retirement fund are just the beginning. People should also be saving for trips and toys, as well as aggressive investments, separate from their main savings account. In general, if people can allocate 30% to 40% of their income to various savings and investments, and use 60% to 70% for their general life expenses, they’re on a good trajectory. - Ismael Wrixen, FE International
6. Set Aside 10% And Avoid Credit Card Debt
It depends on the individual (their income and debt ratio) and how much they can realistically set aside. A good rule of thumb would be to set aside 10% and have your financial institution automatically deposit 10% of your check into a savings account. Always pay yourself first every month. For young people, stay out of large credit card debt. Period. Or pay it off ASAP. - Ibrahim AlHusseini, The Husseini Group
7. Look To Your Five-Year Plan
My philosophy is to store at least 20% of your income for retirement. So when it comes to savings accounts, first you need an emergency fund, or three to six months of living expenses. Next, you need an account to accomplish your five-year plan. For example, if you're planning a big purchase in a few years, set a percentage of your income above that 20% and save for that specific purpose. - Justin Goodbread, Heritage Investors
