If you’re an avid reader of financial advice, then you’ll know one of the top tips is to start an emergency fund. Financial experts often encourage this, if you visited a financial advisor this is one of the first things they say.
You set aside some cash that you don’t touch, and keep adding more savings to it over time.
An emergency fund is different from a typical savings account. With your emergency fund, you don’t intend to save up for anything.
Some people start savings accounts in preparation for their kid’s college tuition or to get ready for retirement. You don’t save money with any set thing in mind when you start an emergency fund, it’s there as a safety blanket just in case something happens.
A lot of people have a hard time understanding why emergency funds are so important. So, this article will explain why you need to start a fund of your own, just in case.
Emergencies Can Be Very Costly
The main reason an emergency fund is so important is that emergencies can be incredibly costly. Let’s say you or someone in your family gets into a freak accident at work that causes them to be rushed to the hospital.
Their injuries are severe, and they spend a lot of time in there getting fixed and going through rehabilitation. All of this results in massive medical bills that you can’t afford.
You can try and get some money through a personal injury lawyer and claim compensation, but it might not be enough.
Now, with an emergency fund, you may have enough money saved up to cover the costs completely or partially. Either way, you’ve taken an expensive emergency and made it far less impactful on your finances.
Without your funds, you wouldn’t be able to do that. You’d be in debt, and you’d have to find other ways of raising the cash to pay your bills.
It’s not just medical emergencies either, what if something happens to your home or car? Repairs for both of these things can be expensive and leave your finances rattled.
Again, the emergency funds would help cover the costs and leave you in a much better financial position.
Emergencies Can’t Be Predicted
As well as being costly, emergencies are also unpredictable. There’s no knowing when something will happen.
Consequently, there’s no knowing when you could get hit with a huge financial issue thanks to the emergency.
Emergency funds are there to help you prepare for emergencies before they happen. Instead of something happening, and then you try to save money to pay for it, you have the money already available.
An emergency fund is important because you never know when you’ll need it. Things may seem perfectly fine now, but there’s no telling what could happen in the future.
To sum up, why are emergency funds so important? They provide you with a perfect financial safety blanket for some of life’s unexpected moments. Whether it’s a medical emergency, a home emergency, or whatever, you may be in a position where you need money.
If you’ve already saved some up, you won’t fall into debt or rely on lenders to help you out.
Do You Have an Emergency Fund?
Personally, one of the best ways I’ve found to build my emergency fund was to set up an online saving about and do an automatic deposit every week from my paycheck into that account.
When things are done automatically it guarantees that you’ll have extra money set aside when an issue comes along that you didn’t expect.
So how about you, do you have an emergency fund, and if so how are you ensuring that you are setting money back each and every week?
I would love to hear your thoughts on this in the comments section below.