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How Much Emergency Savings Do Homeowners Need?

[Updated: Dec 11, 2020] Feb 10, 2020 by Maurie Backman
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Life has a way of throwing unwanted financial surprises at us. Your car could break down without warning. You could get hurt randomly and get stuck with a host of medical bills to follow. Or, you could lose your job for a period of time. That's why, as a general rule, it's smart to have an emergency fund -- money in the bank to pay for unplanned expenses or to tide you over during a period of unemployment. But while everyone should have emergency savings, it's especially crucial for homeowners. When you own property, there's the potential for a lot of expensive things to go wrong:

  • Your roof could get damaged or spring a leak.
  • Your heating system could fail in the heart of winter.
  • Your septic system could stop doing its job -- leaving you with a truly dire situation on your hands.

And these are just a few examples. That's why, as a homeowner, you should make an effort to have extra cash reserves -- to protect yourself and the asset you worked so hard to buy in the first place.

What should your emergency fund look like as a homeowner?

Most people are advised to sock away three to six months of essential living expenses in a savings account earmarked for emergencies. If you own property, make no mistake about it -- you really need to hit the top end of that range. That pile of cash could be a lifeline if something goes wrong with your home, and you need money instantly for repairs, or if you lose your job and therefore don't have a paycheck to use to keep up with your mortgage payments. Now you may be thinking: If I own property, can't I just tap its equity when emergencies strike, or the need for money arises? And in some cases, yes, you can. But what if you don't have enough equity in your home to access the money you need to make repairs or pay your mortgage while you're unemployed? At that point, your only borrowing options are apt to be costly. Even home equity loans can get expensive to pay off, despite them being a relatively cheap alternative, so you're really better off having cash in the bank to cover repairs or ride out a period of not having a job with. In fact, if you own an older home -- say, one that's at least 30 years old -- where there's lots of potential for things to go wrong, you may even want to pad your emergency fund, so you have enough money to cover more like eight or nine months' worth of living expenses. Granted, you don't want to tie up too much money in cash, because the amount of interest you'll earn from a savings account will generally pale in comparison to what you might get by investing in stocks or real estate. But a little extra protection really won't hurt.

Building your emergency fund

Ideally, you should enter homeownership with a healthy emergency fund at your disposal. But if you've missed the boat on that, start cutting back on discretionary expenses immediately to free up money for savings. That could mean taking a budget vacation the next year or so instead of a fancier one, dining out less frequently, and canceling some services you technically don't need, like cable or subscriptions. You can also try getting yourself a second job to boost your cash reserves. Though emergency savings are important for everyone, homeowners in particular really must have money in the bank because so much more is at stake. If you don't have a solid emergency fund at present, make building one your chief financial priority. It could be just the thing that saves you from costly debt or -- worse yet -- losing your home when you fall on hard financial times.

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