10 Reasons Why You Need An Emergency Fund – No matter how much money you make (or how little!), you NEED an emergency fund. Period! Here’s why…
One of the biggest lessons that I ever learned when it came to saving money was to prepare for the worst but hope for the best. That might seem a little bleak, but I’m a bit of a realist.
Bad things happen. It’s sad, but it’s true. Are you financially prepared?
Many people throw all of their money toward paying bills or debts and completely overlook the need to build up an emergency fund. But what happens if you should need a large amount of money suddenly? What will happen then? Well, you’ll likely get into more debt or find yourself in a position between a rock and a hard place.
That’s not to take away from the importance of paying off debts and paying bills, but it’s simply encouraging you to remember that things will come up; are you prepared for them?
10 Reasons Why You Need An Emergency Fund
1. Job change.
Maybe you (or your partner) hate your job and have been looking for a new job. The dream job comes along, but the pay is less or there is a period of time when they hold your pay until you’ve completed training.
You can’t afford to be out of a paycheck for 1 week or even more! An emergency fund will cover this expense.
2. Job loss.
Even if you’ve done nothing wrong, sometimes you (or your partner) will lose your job. Sure, you could collect unemployment if you were let go, but that won’t cover your full salary.
Even if you start to look for a job the very second that you lose your job, you’re still going to have some downtime between jobs.
3. Pay cut or reduced hours.
Companies can choose to issue pay cuts to save on expenses (while I think that seems silly, it does happen on occasion). Or sometimes, they will cut hours to cut back on their expenses.
Even if you go from 40 to 35 hours/week, that’s still 5 hours of pay that you’ll be missing out on. Maybe it’s just temporary, but until you figure out how to replace that lost income all the time, an emergency fund will help soften the blow of the lost hours.
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4. Unexpected home repair.
Ahhhh… the joys of homeownership. Sometimes, the roof leaks out of nowhere revealing an immediate need for a very costly repair. Even if you are renting and you have damage to the property that is caused by you and not a fail from the building (like if the kids shove a towel in the toilet and it overflows, slipping gallons of water into your kitchen below the bathroom), you will be on the hook for those repairs.
A huge repair cost could uproot your entire financial plan.
5. Unexpected one-time medical expense.
Kids are notoriously expensive… especially boys! Trips to the ER for bumps, stitches, broken arms, chipped teeth, etc. are all completely normal for parents.
Other one-time expenses can include cavities, root canals, appendectomies, stitches, wisdom tooth extractions, and close to a million other medically necessary expenses can come up and drain a bank account very quickly. Thankfully, it’s just a one-time expense!
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6. Unexpected long-term medical expense.
An unexpected diagnosis can be a life-changer. Unfortunately, these are expenses that do happen.
Whether it’s diabetes, cancer, celiacs disease, IBS, ulcerative colitis, heart disease, etc., there are going to be a lot of expenses very quickly when you first get your diagnosis.
Eventually you will re-work your budget to include paying for the monthly needs, but in the beginning, there are a lot of expenses for tests, samples, specialist visits, second opinions, etc. that happen very quickly.
7. Immediate need to move.
Maybe it’s a family member who needs support or a new job, or maybe there’s something wrong with your current house. No matter what the reason, sometimes you need to relocated very quickly.
Moving expenses can drain your bank account very quickly. Having an emergency fund will make the move smoother.
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8. Mental health or addiction issue.
This is a tough one that has touched my life very personally. Some mental health issues can cripple someone and make it impossible for them to work.
The same can be said about an addiction. I refuse to shy away from talking about this one, guys. Chances are remarkably high that you’ll know someone with an addiction.
Until you can get control over the addiction (or at least the person’s ability to spend), an emergency fund might be the only way that you can get your basic needs met.
9. Death in the family.
This is the scenario that I dread the most. This is especially difficult if this is the death of the primary breadwinner of your family.
But it does happen. You need to be prepared if the worst should ever happen (God forbid)! I’ll admit that I don’t like to talk about this subject.
I’ll admit that I don’t like to talk about this subject. I don’t even like to think about it. But I can’t imagine losing my husband and finding myself in a horrible financial bind all at the same time.
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10. Any other “big” expense that can come up randomly that you can’t just pay for with your regular money.
Life is truly unpredictable. Even if you feel that your life is stable, things can change in an instant.
Even if you have the safety net of insurance policies, there are always things that aren’t covered that could happen. You could have an earthquake in the middle of Pennsylvania and have your house knocked off of its foundation (happened to a friend – wasn’t covered by insurance). Someone could sideswipe your car, leaving it heavily damaged and you’ll still need the money to meet your $1,000 deductible. Maybe your beloved family pet gets hurt and you need to pay the whole bill out of pocket.
If you are committed to staying out of debt or working your way to get out of debt, then having an emergency fund is completely necessary to help you. Save at least 6 months worth of expenses in this account. And I promise that you’ll be happy that you have it some day!
Do you have an emergency fund?