An emergency fund is essential. If you lose your job—a dilemma that too many people have had to face recently—or run into dire straits from another direction, you’ll need some money to tide you over until you get reorganized. Some people need to have an emergency fund to tap into because of the unsteady income provided by their jobs. If you’re in a business where you earn a lot of money sometimes and very little or no money at other times, you might need emergency money to use during the lean periods. Of course, it’s important to set up a budget so that you don’t spend more than you should when you have money coming in. If you don’t have an emergency fund and you lose your job or get into financial trouble, the temptation might be to use your credit card. You could live perfectly well on your credit cards for several months, depending on your credit limits. Nearly everyone, from your doctor to your grocery store, will take your plastic instead of your cash, and your credit card issuer will be delighted. But if you end up with $4,000 or $5,000 in credit card debt at the end of that time, you’ll be the one who’s sorry. It will take you a long time to get back on your feet again. Establishing an emergency fund should be a priority in your personal finance plan. You can build the funds within a money-market fund, which will give you accessibility and liquidity, as needed. Even better, use a monthly or biweekly automatic debit from your checking or savings account to transfer money into your emergency fund. That way, you pay yourself first, before you’re tempted to use the money for other purposes.
