This Is Why You Need An Emergency Fund
How often do you think about an emergency fund? Chances are, not very often. And probably only when an emergency happens and you experience that dreaded “uh-oh” moment.
Establishing an emergency fund is an important part of maintaining personal finances, but much confusion exists about why, when, and in what amount an emergency fund should be established. About 58% of Americans say they have accrued less than $1,000 in their savings accounts; while savings in any amount are a good thing, $1,000 isn’t likely to go very far if you need to address one of life’s unexpected emergencies.
Here are some things to consider when it comes to building an emergency fund that can suit your particular circumstances, your budget, and the challenges that life may send your way.
In the course of an average lifetime, jobs can be lost. Health issues can surface that impede earnings potential. Unimaginable disasters such as a house fire can occur. And despite any of these occurrences, bills will still need to be paid and financial obligations met. Consider an emergency fund as a type of ‘padding’ that allows you to manage some of life’s bruising circumstances without panic and without damaging your financial stability. With an emergency fund in place, you’ll be in a better position to resume your regular financial management practices and your lifestyle after the emergency has passed.
Establishing an emergency fund is a sound financial practice for everyone, but especially if you’re a homeowner. Essential and costly home repairs can come out of the blue – and cost you a lot of green. Broken water pipes. Leaky roofs. Furnaces that chug along barely enough to heat a room, let alone an entire house. Unlike renters, homeowners are solely responsible for any repair bills; an emergency fund can help you cover the cost.
If you’ve purchased a car, consider establishing an emergency fund that you can dip into should your vehicle require costly repairs. Automotive repairs, whether they’re needed to address average wear and tear or the damage caused by a car accident, can range from a few hundred to several thousand dollars. Having an emergency fund in place can set the wheels in motion for you to cover repairs you didn’t see coming.
An emergency fund can also bring peace of mind to pet owners. Anyone who has ever brought home, cared for, and loved a pet knows the cost of having a fur baby. Pet health can be unpredictable, and medications or life-saving surgeries can cost more than you ever imagined. An emergency fund can help ensure that you have enough funds on hand to cover your pet’s essential care.
There’s no absolute rule about how much money you should have in an emergency fund, just as there is no absolute guarantee that you’ll experience only certain types of emergencies in your lifetime. Living habits, career, job situation, health, and personal lifestyle can all impact the type of emergencies you might encounter.
If you’re looking for a good rule of thumb, financial experts suggest saving enough money to cover at least three to six months essential living expenses such as rent, mortgage, insurance, groceries, etc.
With an emergency fund in place, you stand a good chance of turning a sign of panic when an emergency happens into a sigh of relief.