Nanny Knowledge: Saving for Emergencies
Talking about and planning for emergencies is never pleasant, but as we all know, bad times can strike at a moment’s notice. Those bad times have a way of turning to worse if you realize too late that there’s not enough in your savings account to help you ride out the emergency. Whether it’s an unforeseen job loss, auto repair, health problem or family emergency, having an emergency stash will ensure that you’re ready to face anything life throws your way.
But how much money should you have in an emergency savings account?
Sheila Schroeder, financial expert, parent and nanny employer, in her workshop “Women, Money, Power” recommends that nannies budget 10-15% of their income into a savings account to cover emergencies and retirement. It’s impossible to know how much that means for you if you don’t have a workable budget in place. (If you need a refresher, take a look at her worksheet, “Balancing Your Budget” and our Nanny Knowledge: Budgeting Basics blog post.)
Once your budget is in place, make a few adjustments so that 10-15% of your monthly income is funneled straight into your emergency savings account, and keep saving monthly until you’ve reached the three to six months savings goal—more if it makes you feel more secure. After that, you may consider channeling that portion of savings into an IRA or other retirement account instead.
The most important thing to remember with an emergency savings account is just that—it’s for emergencies only. Once you’ve deposited money into that account, consider it strictly off limits unless a true emergency arises. A shoe sale at Nordstrom’s or a last minute bachelorette weekend for a friend is not a true emergency, but buying a flight home to attend a sick parent or being out of work between families is.
Of course we all hope that an emergency never happens, but consider your emergency savings like an insurance policy against the unknown.