Establishing an Emergency fund

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If you are reading this and it is applicable to you, it means you are no longer a little boy/girl with no responsibilities.  You are going to have certain financial obligations and if not fortunate, medical expenses to cover for.

One thing to establish is an emergency fund, in case a big expenditure comes up out of nowhere.   The actual amount to keep varies.  The rule of thumb it to keep an emergency fund that is at least 3x of your monthly expenditures (so if you spend $2000 a month, then you should save at least $6000.  Similarly, if you spend only $1000 a month on average, then save $3000).

With an emergency fund established, you get a couple things:
  1. Piece of mind.  With a little cushion, even if you get laid off and lose your main source of income, you can survive a couple months.
  2. More piece of mind.  If an unexpected expense comes up, you won't be stressed out because you have the money to pay for it
  3. Opportunity.  With this emergency fund in hand, you can 'borrow' against it for a short term (a couple months at most) to capture some good opportunities (say stock market, or good deals).  Since you are borrowing against yourself, it is interest free.  Note that while you are 'borrowing' against yourself, you need to keep an extra eye on your expenses.  The quicker you repay yourself, the better
Remember, the last thing you want to do is borrow money for daily expenses.  Credit cards, with an interest of rate of 18%, is highway robbery.  And taking money from them just digs you a hole that you may never get out of.  So it is much better to borrow from yourself.

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