We have all heard over and over that we need to have an emergency fund from which we can pay for those unexpected life events that pop up all of the time. You are supposed to put about $1,000 into your emergency fund and, then, you are supposed to fund about six months of income (further extending your emergency fund) to help pay for things like major medical problems, and loss of job, etc.
But, things change. While these are all great bits of financial advice there is one problem: with the economy in the condition that it is, it might not be possible to be that aggressive. Job losses are in the news every day, so it makes it difficult for most families to make as much headway in getting their emergency funds going.
How much? Instead of setting an arbitrary amount for everyone, look at doing what you can. If you are able to get $250 for your immediate emergency fund together and are not able to do much more than that, then that is acceptable for you. Some might find that $500 is a better amount. Still others can easily exceed $500 and move to $1,000 or even more. Tailor the amount to your needs and income.
How long? Some might find it unrealistic to place six months of income into an emergency income fund. There might be those who are able to only put one month away. Still others might only be able to do three months. The point is to make it work for you on your timeline. Having a lower amount in the fund does not equate to failure.
How do I fund it? Do a blitz, by selling things that you no longer need, etc. Once you are where you want to be then, any other money that you are able to raise should go towards retiring debt.
How do I use it? Restricting your emergency fund to emergencies only is good advice, but you can expand it a little bit within reason. For example, do not use this money for impulse purchases, but if you are out of money for the week and need to purchase things like food for the family and all you have access to is your emergency fund, then, by all means, use it. But, pay it back out of your next paycheck.
Do not allow hard and fast numbers and the inability to achieve those numbers discourage you and keep you from trying. That is the point: do what you can and move to the next step. Look at your finances and make realistic choices, and you will be in a better position because of it.
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