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You’ve heard of companies having contingency funds. These are simply resources that are set aside to manage the cost of unanticipated financial emergencies. Why not take this idea and apply it to the operation of your household?
A household contingency fund provides the money needed to take care of expenses that are not covered in the family budget. For example, a tire blows out and you’ve already used this month’s allotment for automobile maintenance. That’s no problem if you can use the money that you’ve saved in the contingency fund.
Set up the contingency fund as a line item in your household budget. Allocate a few dollars to it every month. The amount that you allocate will vary somewhat from month to month, depending on how much surplus you have after properly funding all your other monthly expenses.
If there is a balance left at the end of the month, let it roll over into the next month. Don’t let that rollover be an excuse to not add a little more in the fund during the current month. The idea is to grow a resource that can be used in any emergency situation. Following this approach will greatly reduce your dependence on the utilization of outside funding sources, such as running up the balances on credit cards or having to take out a short-term loan when and if an unbudgeted but necessary expense occurs.