In America, 57% of people have less than $1,000 in savings. While this is considered the norm, it doesn’t have to be that way. If you’ve followed personal finance gurus like Dave Ramsey for a while, you may think that the best way to avoid getting into debt is by having an emergency fund of $1,000. That seems to be the magic number, but it’s not. Here’s why you need more than $1,000 in savings.
Why You Need More Than $1,000 in Savings
This post has been written by our staff writer, Kimberly Studdard.
1) Life Is Expensive
$1,000 back in the 1970s may have been a lot of money. But these days, $1,000 won’t get you very far.
- In some cases, that’s less than a month of rent.
- Your car could break down and cost you $1,000 just for simple repairs.
The truth is, life has gotten extremely expensive. This is one of the main reasons why you need more than $1,000 in savings.
If you’re going to have an emergency fund, try having at least half of your monthly living expenses saved. That way, should anything expensive come up, you aren’t scrambling to pay it off and cover living costs too.
2) You May Lose Your Job
In the case that you, a significant other, or even a roommate loses a job, $1,000 in savings just won’t cut it. While $1,000 will certainly help, losing a job can mean a significant loss in income, and it could put you in a dire living situation. Unless you work for the government (and even then, you could still lose your income) your job is not a guarantee. This is another reason why you need more than $1,000 in savings.
While you can’t prepare to be laid off or fired, you can prepare your finances just in case. $1,000 is a great place to start, but in this case, you’ll need a few months of living expenses. I recommend at least 3 months saved up. If you can save more, even better!
3) Multiple Emergencies May Occur
Have you ever had one bad thing happen to you, and then something else happens immediately after? Maybe your car broke down in the morning, and then your dog got sick and had to be rushed to the emergency vet that evening. Sometimes, it seems as if the universe gives us trial after trial, and when that happens, a small emergency fund may not help too much.
4) It Gives You Peace of Mind
If you have kids or other people that depend on you, you understand why you need more than $1,000 in savings. Taking care of other people can get expensive! If you have more than $1,000 saved, not only does it give you peace of mind, but it can also ease the worries on your family, which is even better for you. When no one is worried about finances, you can then focus on what is most important.
Imagine this. Your kid falls and breaks their arm. After rushing them to the hospital, copays, and multiple calls to your insurance and doctor, you’re still stuck with a $3,000 medical bill. If you’ve saved that amount of money in your emergency fund, as inconvenient as it is, it won’t break your bank or worry you. And that is why you need more than $1,000 in savings. Having peace of mind is an incredible gift.
5) It Allows You More Freedom
What would you do if you knew you were okay financially?
- Would you take the plunge into entrepreneurship?
- Could you take a longer maternity or paternity leave?
- Would you take a longer vacation?
- Or maybe, just maybe, you’d be able to volunteer more often or take care of a family member like you want to.
Having more money in savings means you have more freedom. The freedom to do what you want to do, and not worry about money issues.
While that doesn’t mean emergencies won’t happen, or that everything will always be perfect, it does mean that you have the freedom and time to figure them out without worrying about how you’re going to pay for them. What could you accomplish if you knew that you didn’t have to worry about your finances?
While saving money can be hard for some, especially those on a lower income or with multiple dependents, it is essential. And while many personal finance experts suggest starting with $1,000 in savings, I always recommend saving more. $1,000 is a great start, but see if you can stretch it to $2,000. Or maybe even $3,000. Or 3-6 months of living expenses. Life is crazy, but a bigger savings means less worry.
You may need more than $1,000 in savings. What do you think?
AUTHOR Kimberly Studdard
Kim Studdard is a strategy consultant and course launching expert. When she isn't spending time with her daughter and husband, or crying over This Is Us, you'll find her teaching other mompreneurs how to scale their business without scaling their workload.