Setbacks like job loss happen. The key thing about having an emergency fund is that you’d be able to live through the waiting game until you find a new job.
Conventional financial planning pegs the number to be 3-months’ worth of living expenses. The recession showed that it should now be at the very least half-a-year’s worth. If it’s possible to up it to a year’s worth, then better.
In case of such setbacks, your emergency fund should be there to make sure that you have ample flexibility to get back on track. It should, however, never run dry.
While it’s meant to cover your monthly expenses, you should, still, at the very least, make sure that you minimize its use.
Do odd jobs to cover daily expenses. Sell your old stuff to support your fund. Most importantly, cut costs.
Being jobless would definitely trim many of your daily expenses but with no income, you should be ready to give up some parts of your lifestyle. All your previous “necessities” (e.g. cable bill, dinners, deliveries, movies) will not be luxuries.
Try to get back on the job hunt as soon as possible. If you have a six-month emergency fund, then make the third month your deadline for getting work. This would ensure that you’d still have a bit of buffer left for other possible emergencies.
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Tags: Emergency, Money, Personal Finance, Planning, Saving