An emergency fund should be 3 month expenses, FALSE
Use your emergency fund during an emergency, FALSE (Never use it, unless you have no other choice)
You can have more than one emergency fund, TRUE
To Start you need a small emergency fund, if you don't have one, start a small one, nothing big, this is for real emergencies, like car repairs and we hope we never have to use it. You can have it in quarters in a jar, or put it in a saving account. Personally I would prefer a high yield saving account so it keeps pace with inflation so your not losing money. Only you know what this number should be, but be realistic and start saving it today.
If you complete this step it's no excuse to waste money, please dont think once you have $400 in a saving account, you can now buy lots of tequila, and get jet ski (with loan), and other bad decisions.
As you go through life you need to look at your responsibilities, each new responsibility will require planning for new emergencies. When you start out this might be you: single, renter, 10 year old car. If your car gets older you'll be more likely to need repair. If you have an life event like a new child, marriage, other life events your exposure changes and you must plan accordingly. People who drink tequila and ride jet skis have more emergencies than people who go to libraries and read.
Don't use your emergency fund, try to find a better way. A lot of people are not willing to change, if you're reading this I hope your open to changing. When I lost my job in the last recession I didn't run to my emergency fund. I made huge changes in my life and my expectations of life. I reduced all spending to ecentials. I found a 3 month contract doing work I didn't like with a long commute being paid less than I was "worth". I worked hard and didn't complain, they extended the contract 30 days. I took the train and walked long distances to save money. I repeated this at another company and eventually found a full time job I didn't really want, paying less than I was worth. I never had to touch the emergency fund because I changed to fit the situation. If I had waited for a good job or If I had not reduced my spending, I probably would have been in serious trouble. I found a better way, I went out in the world and said I will do work i'm over qualified for, and I'll do it less money than everyone else. That is survival. So just leave your emergency fund until you have no other options, because when it is gone what will you do? and will it be enough?
Congratulations you can now plan for a large emergency fund! I would start with 3-6 month "Survival" expenses. For now just jam it in a high yield saving account, we can talk more about this later just make sure to start.
Questions:
- What happens if I lose my job, what can I do before I dip into my emergency fund?
- I would try a lot of things before ever touching an emergency fund, the emergency fund is not there to provide you with champagne and caviar while you "search for a job" that has a cool work life balance.
- If you lose your job you should try the following
- find a job
- If you can't find a job, your wrong, try again
- go to temp agencies and say I will do anything (I find a lot people I know don't even try this)
- go to neighbors and offer to mow lawns, shovel snow, baby sit, painting, etc...
- get rid of all bills you can (like canceling cable or netflix)
- find cheaper living arrangements
- sell any assets not needed for future employment
- dip into any investments you have any
- dip into your emergency funds
- What happens if I have a big expense like roof replacement?
- If you have responsibility like a house that could require large amounts of money in an emergency, you should plan ahead and save for those emergencies.
- if you buy a house with a roof that needs repair or is in a bad state, start saving for a new roof. That money needs to be highly liquid and should be put in something like an emergency fund!
If you liked this article check out the "How to get started" series
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