Since the 1980’s, the saving rate of the general population have been decreasing at a dramatic rate. Add injury to the insult, the credit driven economy is hitting an all-time high and the current stock market is losing steam. While credit cards and lines of credit are an interesting way to manage your finances, setting yourself and emergency fund for rainy days is the best defense against the job market and stock market woes. Everyone that has an income should have an emergency fund.
- It is not an expense account, which means you cannot use it to travel, fix your car or take your girl out on an expensive restaurant.
- It is used to protect yourself in the case where your revenue would dramatically diminish (20% or more) or suddenly stop. For example, a job loss or an injury preventing your from working.
- The objective amount to have, expert say, should be of a minimum of 3-6 months of expenses. Your expenses should include lodging, transportation, utilities, food and credit payments.
- The funds should be easily accessible but not so that you can dip into with a debit card for example.
- If you are married or have a partner, everyone that generates income in the household should have their own separate emergency fund.
In part II, we will show you a foolproof method of setting an emergency fund.