We never know when an emergency may strike. The world can be unpredictable. There are earth quakes, tsunamis, power outages, broken ankles, sprained wrists, career changes, job losses, and many other unforeseen circumstances that can leave us without money. I always follow these basic financial guidelines to assure I will succeed during hard times.
First, I add up my monthly expenses. These include my rent, utilities, phone service, food, medical bills, minimum credit card payments, car insurance, gas, and pet care. My list consists of all necessities, and I do not include optional expenditures in the calculation.
Second, I decide how many month’s expenses I need to save up in case of job loss, medical emergency, etc.
- 3 months expenses if I have a stable job, and money available by loan. I also include accounts I have money to borrow against.
- 6 months expenses if I have either a secure job, or money readily available from accounts, family, or friends.
- 9 months expenses if I do not have a reliable job, other accounts, or loans available from friends or family.
The money I save for my emergency fund goes into a savings account separate from my other accounts.
Finally, I reevaluate my emergency fund every time I have a major life change such as a new job, new expenses, or a new family member. Every situation is different, and life is constantly changing. It is important to keep up to date!
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