Many experts say that you should set aside anywhere from three to six months worth of expenses in case you lose your job, incur hefty medical costs or otherwise find yourself unexpectedly short of cash.
Having a rainy-day fund to fall back on is especially important these days, given the state of the economy and the job market. But while most people understand the importance of a rainy-day fund, figuring out how to set that money aside can be tricky.
Thanks to heightened inflation, most budgets are so tight that squeezing out a few hundred extra dollars each month is a big challenge -- much less finding enough cash to last three to six months.
Consider how long it will take for you to reach your target rainy-day amount at your current savings pace. The Emergency Savings calculator from BankingMyWay.com can help you figure out how long it will take before you've compiled an adequate emergency cache.
The calculator starts by helping you estimate how much you actually need to set aside.You will need to input your monthly living expenses and the number of months that you want to cover (remember that experts suggest three to six months). The calculator also asks you to estimate how much you may have to pay in terms of emergency bills, such as medical, legal, insurance deductibles and even property damage.
You also need to enter your expected rate of return (these days the average money market fund ranges from around 0.4% to 2% depending on your state, according to BankingMyWay.com), as well as your state and federal tax bracket -- unfortunately, any interest you earn on your emergency fund is taxable.