3 Expenses You Might Be Forgetting to Factor Into Your Emergency Fund

Make sure you account for these costs when budgeting for your emergency savings.

There's a reason we're all supposed to make building an emergency fund our top financial priority: You never know when you might lose your job and find yourself out of work for months on end. While your unemployment benefits might help cover some of your bills (assuming you're eligible to collect them), they'll probably fall way short in paying for all of them.

In fact, a good plan is to sock away enough money in your savings account to cover at least three months of essential bills. But when you do those calculations, you'll want to make sure to account for these three costs, too.

1. Property taxes

Homeowners who pay their property taxes directly (as opposed to those who lob them into their mortgage payments) typically pay them once every quarter or once at the end of the year. It's easy to forget about them if you're basing your emergency fund off of your monthly bills. But if your property taxes happen to come due at a time when you're out of work and living off of your emergency savings, you could run into a crunch if you didn't set money aside for them in the bank.

Take a look at what your property taxes cost on an annual basis and divide that by 12. Then, if you're building an emergency fund with six months' worth of living expenses, make sure you can cover six months of property taxes. If you pay property taxes at the end of the year, you should ideally always have enough in your emergency fund to pay the amount in full.

2. Annual insurance premiums

Many insurance companies bill customers on an annual basis. If you have homeowners insurance, life insurance, or auto insurance, you might pay a single premium once a year for your coverage, as opposed to a monthly fee. And so it's easy to forget about those premiums in the course of calculating your emergency fund.

But just as you'll need money on hand to cover your property taxes when you're out of work, you’ll also need to keep up with insurance premium costs. Those are expenses you'll need to factor into your emergency savings plans.

3. Modest leisure

Your emergency fund should be there to ensure your essential bills are covered while you're out of work. But there are some expenses that technically aren't essential, but are important nonetheless. And those are costs you should account for when determining how much money to save.

If you're out of work, you can cut back on restaurant meals and avoid spending money on things like concerts and sporting events until you're earning a paycheck again. But is it really reasonable to go months without anything to watch on TV? Probably not. You should include cable or your go-to streaming service in your emergency fund calculations, as well as any other similarly modest expenses that are important to your mental health.

The more thorough you are in calculating your emergency fund, the better it will serve you when you need it. Keep these specific expenses in mind when you sit down to run those numbers so you've covered on all fronts.