We’ve all heard about the importance of setting up a rainy-day fund “just in case” something unexpected happens. However, in today’s world, a solid emergency fund is more crucial than ever before.
From global pandemics to natural disasters, we’ve seen how quickly the world can change. While we hope the worst of these events is behind us, it’s always a good idea to be prepared for whatever might come next. Here’s a look at how much cash you should stash away for emergencies and how to build your own fund for national catastrophes.
Why You Need a National Emergency Fund
When emergencies strike, having cash on hand is invaluable. In a crisis, you might not be able to access your bank accounts, so having physical cash is essential for buying food, gas, or other necessities. As Annalee Leonard, an investment advisor and president of Mainstay Financial Group, advises, “Banks and ATMs may not be up and running for days after a disaster.” She recommends having enough cash on hand to cover your spending for at least three to five days.
How to Decide How Much to Save
Determining how much you should have in your emergency fund involves asking two key questions:
- How much will I need in the event of a catastrophic situation?
- How much can I afford to save?
Financial experts, including Priyanka Prakash, financial tech writer, emphasize the importance of having a small amount of physical cash available for the most extreme emergencies, particularly when banks aren’t operating.
Aim to Save $2,000
While the exact amount will vary depending on your personal needs and circumstances, a good target is to have around $2,000 saved for an emergency. According to Brett Tharp, CFP at eMoney Advisor, this amount can cover essential expenses like food, water, shelter, fuel, and medications during a crisis.
“If banking operations are shut down due to a national emergency, keeping $1,000 to $2,000 in cash can help you manage those initial days,” says Gregory Brinkman, president of Brinkman Financial.
There’s No ‘Magic Number’
Though experts may suggest different amounts, there is no one-size-fits-all when it comes to your emergency fund. The key is to start saving and build the fund according to your comfort level. Even if you can only manage to set aside $1,000, it’s far better than having no emergency cash at all.
The Cost of Covering Necessities
During a national emergency, costs for essential items like gas, water, and food will likely rise. Price gouging could become common as demand increases, so it’s important to account for these inflated prices in your fund. Here’s a rough estimate of what you might need for basic survival:
- Water (10 gallons): $13
- Gas (20 gallons): $71
- Portable solar generator: $150
- Battery-powered lights: $20
- Emergency solar hand-crank radio: $20
Keep in mind that prices will vary, and these are just estimates for one person’s emergency needs.
What to Put in Your Emergency Kit
An emergency kit should include items beyond just cash. Be sure to have the following:
- Batteries and tools
- A first aid kit
- Nonperishable food
- Necessary medications
- Spare clothing
These items will help you survive until the situation improves or you can access other resources.
National Emergency Fund vs. Regular Savings
Unlike a regular emergency fund, which is used for things like medical bills, car repairs, or unemployment, a national emergency fund should be reserved for situations where credit cards or electronic payments may not work. Your regular emergency savings should be kept in a savings, money market, or CD account, while your national emergency fund should primarily be in cash.
How to Start Building Your Emergency Fund
Start by creating a budget, advises financial expert Rachel Cruze. A zero-based budget, where your income minus expenses equals zero, is ideal for seeing where your money is going and identifying areas where you can cut back. Then, prioritize building your emergency fund.
Start small if necessary. Even setting aside $250 a month can get you to your $3,000 goal in a year. You could also automate your savings by setting aside about 10% of your monthly income.
Make Saving a Priority
With job insecurity high and economic conditions unpredictable, it’s crucial to make saving for emergencies a top priority. Chalmers Brown, CTO of Due, suggests reviewing your budget and cutting discretionary spending—like eating out or entertainment—during times of crisis.
Put Other Contributions on Hold While You Build Your Emergency Fund
While saving, it might be wise to limit other financial contributions like additional debt repayments or extra retirement savings. Focus on maintaining the minimum necessary payments while funneling extra funds into your emergency savings.
Should Your Emergency Fund Be All Cash?
If you’ve built up a sizable emergency fund, it’s wise not to keep all your savings in cash, as it can lose value over time due to inflation. Financial expert Priyanka Prakash recommends keeping the bulk of your emergency savings in a savings account or certificate of deposit (CD), where it can earn interest.
However, it’s important to have enough cash on hand for immediate needs in case of a national emergency. For this purpose, aim to keep $1,000 to $2,000 in cash at home, and store it securely in a fireproof safe.
Consider Alternative Assets
In addition to cash, you may want to consider diversifying some of your emergency fund into alternative assets like gold or silver, which can hold value during crises. These assets can serve as a backup if your cash loses purchasing power during high inflation periods.
How to Hide Money at Home
For those who keep emergency cash at home, it’s essential to store it securely. A fireproof safe is ideal, but there are other creative places to hide money:
- A bottle of aspirin in your medicine cabinet
- A hollowed-out book
- Between the cardboard backing of a framed picture
- Burying it in your backyard (in weatherproof material)
- A sealed plastic bag in the freezer
Why Cash is Still King
Cash remains one of the most effective ways to protect yourself in an emergency, particularly when electronic payments or bank access is unavailable. By planning ahead and securing your emergency funds in multiple forms, you’ll be ready for whatever life throws at you.
What to Do If You Don’t Have a National Emergency Fund Yet
If you don’t have a national emergency fund, don’t panic. Focus on your immediate needs first, like food, housing, and transportation. If you’re struggling financially, reach out to your lenders for possible payment deferments and avoid using debt to cover emergency expenses.
In times of crisis, financial discipline is key. By making your national emergency fund a priority, you’ll have the peace of mind that comes with being prepared for the unexpected.
Source: https://www.yahoo.com/finance/news/much-cash-stashed-national-emergency-130023345.html