How to Save 6 Months Salary for Newcomers to America
Having an emergency fund is one of the essential things you can do for financial health. We’ll explain how to save 6 months' salary for newcomers to America.
Creating an emergency fund can save you from financial disaster and help you achieve financial freedom. It can also give you a lot of peace of mind. We’ll explain what an emergency fund is, what it’s for, how to calculate the right amount for you and how to save 6 months salary faster than you might think possible!
Emergency Savings
Emergency savings or an emergency fund is money you set aside to pay for unexpected expenses that can’t wait. That might include a car or home repair, a medical or dental expense, unplanned travel, or a period of unemployment.
Without an emergency fund, you could be forced to rely on things like credit cards or payday loans, both expensive alternatives that can badly damage you financially.
How much are 3-6 months’ expenses?
Everyone’s emergency fund amount will vary based on their income and expenses. There are some simple ways to get that number. The first is your emergency fund ratio. It looks like this:
Cash (Cash, checking, and savings accounts) + cash equivalents (Treasury bills, Certificates of Deposit, Money Market Accounts, etc.)
Divided by:
Monthly Non-Discretionary Expenses
Non-discretionary expenses are those expenses you must pay like rent, utilities, groceries, auto payments, etc.
If you have $5,000 in cash and cash equivalents and $1,000 in non-discretionary monthly expenses, your emergency fund ratio is 5. $5,000/$1,000=5.
An ideal emergency fund ratio is between 3-6.
Another way to get your target number is to use an emergency fund calculator. Simply enter in your essential monthly expenses, and you will get the number to aim for to achieve a 6-month emergency fund.
How to save $15,000 in 6 months
$15,000 is a significant number, but let’s break it down, so it’s less intimidating! To achieve this goal, you need to save:
$2,500 per month
$625 per week
$90 per day
Go through your spending thoroughly and look for “spending leaks,” areas where you overspend. Food and entertainment are categories most people can afford to cut. Stop buying any food or drink when you’re not at home, and no ordering take-out either! Not forever, just until you reach your goal. We’re not suggesting you cancel all of your streaming services, but if you have several, you’re likely spending more than you realize each month.
We spend an average of $3,526 per year (In 2019, 2020 was less due to Covid, so we used the more typical number) or $294 per month on food away from home. We spend an average of $55 a month on streaming services. If you factor in all subscription services, it’s $247 per month!
Just cutting those two areas of spending saves $541 per month! Those are far from the only areas that could be cut, though. Carefully look at your spending and see where you can save. Again, it doesn’t have to be forever, but fully funding your emergency fund should be your priority.
Saving money is the only way to reach your emergency savings goal. Making extra money can help you reach your goal too. Freelancing sites like Upwork and Guru are great places to make extra money, and if you speak at least one foreign language, tutoring may be another option.
Where to keep your emergency fund
A savings account is the best place for your emergency fund. The money needs to be somewhere liquid and safe. If it’s invested, it’s not liquid. If it’s in your checking account, it can be more tempting to spend for some people.
At Upwardli, we can help you find the best savings account for your emergency fund and many other financial products that will help you create a healthy financial life and give you financial freedom in your new home.
