Savings: start small, aim for 6 to 12 months
How much should I have saved before I invest?
2 minute read
A cushion is money set aside for surprises. It keeps a job loss or car repair from turning into credit card debt or a missed payment.
Start small. $500, then $1,000, then one month of basic expenses. Small wins build the habit.
The goal is 6 to 12 months of basic expenses. Self-employed or one-income households should aim for the high end.
Keep it in an FDIC-insured savings account, separate from checking, so you do not spend it by accident.
Example
Basic expenses are $4,000 a month. Six months is $24,000. Twelve months is $48,000. Saving $400 a month gets you to your first $4,800 in a year.
Why this matters
Without a cushion, every surprise becomes debt. Lenders also like to see savings, called reserves.
What to do with this
- Open a separate savings account.
- Set an automatic transfer on payday, even $25.
- Raise it every time your income goes up.
Want this applied to your own numbers?
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