When financial matters are uncertain, an emergency fund can help you survive and give you the peace of mind you desperately need.
Don’t hesitate to use it
For non-essential and recreational purchases, you should be hesitant to tap into your emergency fund. However, when it comes to using the money for a genuine emergency, don’t hesitate.
Understand your financial situation
When your financial situation starts to falter, such as reduced work hours or job loss, the first thing you should do is assess your emergency fund and any other liquid assets you have.
Strategically transfer emergency fund money
Your instincts may tell you to transfer the entire balance from your savings account to your main checking account. However, that deprives you of the opportunity to earn interest on the money through a high-yield savings account or money market account.
Prioritize spending
When you decide to rely on your emergency fund, you will need to adjust your financial priorities to make it last. You can’t be sure how long the income shortage you will face will last, meaning you can’t spend as if you have a regular paycheck every month.
Create a budget
While relying on your emergency fund, create an emergency budget that focuses first on covering basic needs like housing and food. Cut back on spending as much as possible when facing financial difficulties, which reduces the amount you need to withdraw from your emergency fund and allows those limited funds to stretch further.
Adjust spending based on your cash flow
If you’re still receiving a paycheck or getting benefits like unemployment, make sure to adjust the amount and timing of your spending. If you usually buy groceries on Monday but your paycheck or benefits are deposited on Wednesday, it might be beneficial for you to buy groceries on Thursday to ensure your account doesn’t get overdrawn.
What comes next?
Your crisis will not last forever, no matter how big it is. Once your income stabilizes, you can start to focus on the long term again and begin rebuilding your emergency fund. Your limited spending habits, at least for a few months, will free up some space in your budget to regularly contribute to savings. You might also consider allocating your next tax refund to your emergency fund.
Once you return to normal, you may need to add a side job to rebuild your emergency fund. Consider picking up a temporary part-time job, such as being an Uber driver or renting out a room on Airbnb, to restore your emergency fund to the level it should be.
Thank you for using your emergency fund and making it last!
Source: https://www.thebalancemoney.com/how-to-use-your-emergency-fund-and-make-it-last-4845795
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