We’ve all heard the financial commandment of creating an emergency fund. Most people talk about an emergency fund as though it’s the single key to achieving financial stability and making sure your finances are in order. By this point, you probably hear this advice, nod, but do not really understand how important a stable emergency fund is. While simply having an emergency fund doesn’t necessarily mean your finances are in order, it does indicate that you’re financially stable enough to set aside money for your emergency fund. A stable emergency fund shows that you’re prepared for unexpected situations and have put thought into your finances. Here are some of the reasons you should start working on building a stable emergency fund as soon as possible.
The biggest reason people highlight the importance of an emergency fund is that it’ll help you in case of job loss. We can never predict how our companies will do or what the economy is going to be like in a few months. You might even make a mistake at work that could cost you your job. Having six months worth of living expenses saved up in your emergency fund makes this situation a lot less stressful.
People frequently talk about the usefulness of an emergency fund for when your car needs repairs or medical costs come up. You might need to get surgery or end up in the hospital due to some accident. Medical bills can quickly rack up, so an emergency fund can help cover those costs. Instead of going into debt for unexpected costs, an emergency fund can cover these payments.
No matter how organized or on top of your finances you are, there is a chance you’ll forget to make a payment. Whether it’s a credit card payment that then racks up interest or something else, having an emergency fund on hand means you can cover this payment as soon as you remember, even if you forgot to leave room for it in your monthly budget.
Sometimes, an emergency fund isn’t for emergency situations in your own life. You might have a sick family member and need to suddenly fly across the country and take time off of work. Maybe a parent or sibling needs some financial assistance; with an emergency fund, you can help them out if you want to.
Not all changes in your life that cost money are negative. You might suddenly be expecting a baby or need to move for a better job opportunity, but do not have the immediate finances to cover that cost. Maybe you need an expensive medication or want to take a spontaneous trip. An emergency fund gives you the freedom and peace of mind to handle these changes and keep moving forward.