Unless you love living paycheck to paycheck, most experts are going to tell you that you must have some sort of emergency fund. This fund, as the name states is going to be used for “emergency” purposes only, but what most people don’t realize is that they may be using this fund for the wrong reasons if they have one started.

How much money should my account have?

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Most experts will tell you that you should have at least six to 12 months worth of funds inside of this account in case of a financial rain storm. If your fund doesn’t have this much money yet, it’s so important that you do it, especially if you’re relying on a 9 to 5 job that may be in danger. Potentially being months away from a new job if you lose the one you have today, it’s always nice to know that you have a few thousand dollars lying around to help pay the necessities.

Now, on the other hand, let’s say that you do have that emergency fund and you’re thinking about using it. If you’re hesitant and unsure of doing so, let’s take a look at some golden rules that you should follow:

Luxury Isn’t an Emergency – Can you Live Without It?

The first thing that you have to ask yourself is, “Can I live without this expense?” If you’re been itching to take a trip to the Bahamas, this isn’t a luxury! If you think you’re entitled to that 60-inch TV, then think again! If you can live without it, that money deserves to stay inside of your account. There is no exception to this rule!

Transportation and Health are Two Big Ones

Unexpected car and health bills can really damage your budget, but before explaining when you should use them, it’s so important that you have some sort of insurance. If you think that health insurance is expensive, you may want to think again. By applying for a high-deductible policy, you can easily insure a healthy family of four for less than $400 a month. While the deductible could be as high as $5,000, this is a lot better than paying $45,000 for a simple surgery!

The same can also be said about your car, and if your car is worth more than $7,000, it’s so important that you have some sort of deductible. That way, if the car gets totaled, you will be responsible for the $1,000 deductible. Yes, I know this can sound like a lot each month but it can pay off and save a lot of stress in case of a health / car disaster.

Create a Deductible Fund

If you want to be a responsible adult, consider having an emergency fund as well as a “deductible” fund. That way, if an accident were to happen, you would have the money set aside already. Now, I know everyone doesn’t do this and that’s fine. Just understand that if you do throw your emergency fund money toward a health or transportation bill, it’s important to build your fund back to where it was in the first place.

Emergency Fund = Catastrophic

Losing a job can suck and if you have lost your job, you’re not alone. You have to remember that if this is your situation, you have to cut down your bills immediately to prolong your fund. This means getting rid of cable TV, Netflix and your “luxuries.” While you don’t have to get rid of them forever, this is going to help you ride out the storm. By doing this, it’s going to help you out so much while looking for that new job. Plan on putting that money toward more important things such as feeding your family, keeping the heat active and paying the mortgage.

In the end, emergency funds should be used for just that – emergencies. If you need it and can’t live without it such as food, heat, shelter, medical and transportation, it’s best that you dip into your fund and spend wisely.

Liz helps run the website, Howmuchisit.org – A resource that helps you find the prices on anything.

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