Every individual’s personal finance situation is different but the bottom line remains the same, having an emergency fund can mean the difference between debt and no debt. In order to have an emergency fund, you need to decide for yourself, what kind of financial situation would you find to be considered an emergency for you.

Having an emergency fund is important. With so many sites out there to tell you how to start one, manage it, or even how much money you need in your emergency fund, I thought I would take a different approach and write about defining your emergency fund so that it fits your needs.

For the past six months or so, I have been building an emergency fund because I will be relocating to York, PA without any knowledge as to what my financial situation will be like when I get there. I have a general plan for my relocation but the specifics will not be filled in until I actually get there. Am I concerned about my financial situation when I move? Not anymore.

In the beginning, when I explored the idea of moving to York, I knew from my experience living all over the country that having a cash reserve would ease the impact of such a move. I made mistakes in the past by not having a defined emergency fund and as a result, I got burned for it. A very special person to me made me realize the value of learning and growing from my mistakes. As a result, I knew I need to define my emergency fund but I was not sure how. When I finally decided that I wanted to move to York, I knew that it became a matter of prioritizing my budget to make things happen.

No one likes to be in debt. Debt is a powerful tool that can be leveraged if understood how to be used properly. For many of us, we do not have that education regarding debt management. Debt management means being able to pay back the money you borrow. All that requires is understanding how that works. If you ever had to borrow money before in the past, then you know you have to pay back what you borrow plus interest.

If you had to borrow before, then you had a reason for doing so regardless of whether it was appropriate or not. Here are some of the reasons you may have heard before from other people as to why they got into debt in the first place.

• I lost my job and needed the cash.
• I was in school and needed the cash.
• I didn’t have insurance and the bills piled up.
• I had to go to a funeral and needed the cash.
• I bought stuff that I did not have the cash to pay for with.
• I started a business on my own but did not plan for the money I needed.

These are all valid and not so valid reasons that you may have heard before one way or the other. This is where you can make a commitment to your own personal finances. You can make a commitment to building an emergency fund to be used for valid reasons so you do not have to “need the cash”.

There is no way for me to tell you how to define your emergency fund because we all have different situations. Some of you may have family members to consider, especially if those family members are not old enough to work, are too old to work, or even unable to work due to a disability or such. Some of you may have a goal to consider such as going back to school full-time or starting a business of your own. Regardless of what your situation is, you can use that situation to help define your emergency fund.

A good starting point is to determine how much money you would need should a situation arise where you need the cash. A loss of an income stream or an unexpected event are two type of situations. Many personal finance bloggers and personal finance advisors suggest having at least 3 month’s worth of funds. For someone who is single, that might mean $6,000 but that would not be enough for a family of 4 or more where $6,000 may last only two months.

I want to suggest something else.

Define your emergency fund as if you will live forever.

When I realized this, I began to see my emergency fund in a different light. Create a plan to provide yourself with a cash fund for emergency so you do not have to take on debt. Create a system to support that plan. Commit to your plan and system and you will begin to duplicate your system each month as you add to your emergency fund. As each month go by, your plan will change because you now have X number of dollars in your emergency fund. Your plan will change because you will be capable of handling bigger emergencies that you may not have even considered.

For example, let’s say you want to a “mini-retirement” so you can take a 12-month course to get a certification to improve your marketability. Not only would you have to deal with not having a full-time income stream, you also have to deal with your monthly expenses along with the tuition. You could work part-time to offset some of the expenses while you work on your certification and use the emergency fund to help with the rest until your get your certificate which would enable you to not only “refill” your emergency fund but increase your monthly cash flow.

How do you define your emergency fund?

It will be good to hear what your definition of an emergency fund is.

What opportunities would you be able to achieve with an emergency fund?