Determine how much you want to save for your fund. It’s recommended that your fund cover the expenses of at least six months, in the event that you suddenly lose your job.
When to use an emergency fund
Logically the use of an emergency fund is discretionary, but there is a problem that you must take into account, not to confuse an emergency fund with a saving for objectives. The difference is key since the emergency fund is intended to cover those situations that may occur due to the breakdown of a vehicle, a breakdown in the home, or simply due to a period of lack of income, while an objective may be vacations or acquire a new vehicle or performing a remodeling at home.
The objectives must be part of the saving outside the emergency fund , when you mark objectives of medium-term savings these must always have the support of the solvency of an emergency fund behind, but do not use the fund as support since you would enter in a spiral of constant filling of emergency funds.
The emergency fund should never be used for non-emergency things like vacations. Instead, use a separate savings account that you can specifically use to save for goals like vacations or new clothing. True emergencies like an urgent need for refrigerator or garage door repair or someone in the family falling ill qualifies as situations in which an emergency fund is needed.
In the event that you use something out of your emergency fund, you must make a point of it to save back that amount as fast as possible. If you keep using the emergency fund without replenishing it, it will eventually run out and you’ll be left with no money in the event of an emergency later down the line.
It should take priority over any other savings. If this means forgoing luxuries for a month while you fill your fund back up, it will be worth it down the line. You’ll be glad you did it when a true emergency strikes. Don’t take out loans for something like garage door repair! Have an emergency fund.