You should also consider any investments you own that could generate some income. If you hold a substantial amount of stock, for instance, that’s something you could sell if you needed to. You’d likely have to pay taxes on the earnings but it’s an option you could turn to in a pinch.
The key is to look at every possible opportunity for bringing in money. Starting a side hustle, picking up freelancing work or selling off things around the house on eBay can generate some income so you don’t drain your emergency fund too quickly.
The more creative you can be about finding alternatives to pay the bills, the less money you can get away with having in emergency savings.
Could I use credit if my savings fall short?
Using a credit card or home equity line isn’t an ideal replacement for an emergency fund, but it’s still an option worth thinking about if you haven’t been able to save a huge amount of money yet. The biggest drawbacks of using credit for emergency expenses is having to pay interest on whatever you charge, which can take a bigger bite out of your wallet in the long run.
The other issue to keep in mind is whether you’ll be able to make the payments on the debt until your income gets back on track. With a home equity line, the repayment terms are usually pretty lenient and you may even be able to get by with paying just the interest each month at the outset. Credit card companies, on the other hand, typically require you to pay 1 to 2 percent of the balance each month at a minimum.
Consider your comfort level
A three-month emergency fund may be plenty to cover your expenses but that won’t matter if you’d sleep better at night knowing you had six months’ worth of savings stashed away instead. The final and perhaps most important thing to factor in when choosing the size of your emergency fund is what you really need to feel financially secure when a rainy day comes along.
How long will your emergency fund last?