How to Stretch Your Emergency Fund
Having an emergency fund is a sigh of relief in times of financial uncertainty. It helps you stay afloat and gives you peace of mind during emergencies. It is essential to use your fund when you face a real crisis, such as job loss or medical expenses.
Buying new home appliances, paying a down payment for a new home or car, and holiday shopping are not emergencies. You must separately save for these expenses and use the emergency fund in times of crisis only. It may save you from taking out a high interest loan.
Focus on your money situation
Some circumstances can disturb your budget and create financial insecurity. For instance, when you lose your job or your company cuts your hours. So, you need to access your emergency fund and other liquid access. Make sure you use your fund carefully.
You can use this fund to supplement your other income, such as severance package and unemployment insurance. An emergency fund can be used to cover your living expenses until you find a new job.
In case you lose your income, think about your monthly expenses and calculate the amount that you can use to cover your monthly costs. How long your emergency fund will last is the most important thing, and you must think about it.
For example, a $24,000 emergency fund will last six months if you spend $4,000 each month. Analyze your monthly budget and consider your checking account statement. These will give you some insights about your monthly spending.
Once you have examined your situation, you may not want to spend your emergency fund because of the discipline and time it took to build it up. Keep in mind that you started your emergency fund for hard times.
Carefully transfer your emergency fund
In times of crisis, you will want to transfer the entire balance from your savings account to your checking account. However, when you do this, you may face the problem of penalties from your bank. It means you may not earn a return on your money market account or savings account.
Experts say that an individual can maximize his or her yield in the market by using an online bank. They provide the highest returns inside of the money market and savings account.
Some top online money market accounts and savings accounts typically earn more than 1.50% annual percentage yield (APY). Although the return is a bit nominal for smaller balances, it is always better to earn some interest than not earning anything.
Prioritize your spending
Prioritizing your finances will help you spend your emergency fund easily. After all, the goal is to make it last. You are not sure about your income shortage and how long will it take to find a new stream of income.
Therefore, you need to spend your emergency fund carefully. For instance, if you were making more credit card debt payments every month, now you have to pay the minimum lowers so that you everything is balanced.
In conclusion, an emergency fund is meant to be used in times of financial crisis. While your emergency fund can help you survive a few months, you need to find a new job to rehabilitate your situation. During the crisis, you must create a budget, cut your extra expenses, and make efforts to overcome the situation.
|Thomas Moore is a proud American with a Bachelors Degree in Business Administration from the University of San Diego. He has been in the financial industry for many years holding numerous licenses in multiple states. He currently helps operate cashkingco.com and is our resident expert on all things finance and a great writer. Thomas is also an avid outdoor enthusiast that loves fly fishing streams in the Western United States. LinkedIn Profile|