Hard Times. Got an Emergency Fund?

If you’ve ever been unemployed, you know how important it is to have an emergency fund. Depending on what you make as well as how much you spend each month, an emergency fund is crucial to keeping you going during those months where the money you’re used to isn’t coming in. Everyone’s heard about the 3-month rule, where you have 3 months saved away for a rainy day. But these days, 3 months may not be enough. The economy isn’t doing so well right now, and if you lose your job, it may be that much harder this time around to get another one, at least quick enough that your unemployment won’t make that much of a dent in your wallet.

One of the key things you need to think about when building that emergency fund is your expenses. If you own your own home, the last thing you want to do is default on your loan. Having at least three months worth of mortgage payments (above and beyond the rest of your expenses), is key to staying in your home.

One way of making sure that you’ll be ok for at least 3 months is by keeping a tally of what your mandatory expenses are each month.

Keep track of your expenses–your mortgage payment or monthly rent amount, credit card bills, utilities, and any other ‘must have money no matter what’ expenses, and keep track of them for three months. Then pad that amount by 10-20%, and that’s the absolute minimum that you should always have stored away in a safe place.

Got a credit card? If you do, keep it paid off, or at least as low as possible. You’ll never know if you’ll have to tap your credit just to survive, but credit cards are a good way to ’survive’ if you have no other means. And we mean that–only use your credit card if you must.

Now’s the time to be hedging your bets. With the looming (if not already here) recession, the likelihood of being laid off has increased, and if you’re one of the unlucky ones to get cut from the team, you’ll want to be able to ride the storm out until you’re back in the game.

The key here is to make sure you can survive when the going gets tough. Personally, I think you should have between 5 and 6 months of expenses in an emergency fund, but like plenty of us out there, that’s simply easier said than done. But start planning today. Put that extra hundred or two into that emergency fund. Got a bonus? Stick it into the fund. A check back from the government as your cut of the stimulus package? Yeah, you know what to do. Don’t procrastinate, my friends. Plan. And you’ll be good to go.