The Importance of Having an Emergency Fund

emergency fund

An emergency fund is liquid money that has been earmarked for financial emergencies and unforeseen expenses. Emergencies do not include monthly expenses or wants, but rather things like medical emergencies, job loss, car repairs or major home repairs. The funds must be liquid (accessible) and you should never rely on credit cards or debt to get you through these. Having an emergency fund can make the difference between a financial bump in the short-term and a financial disaster that upends your life. Here we will look at why an emergency fund is so important.

Insurance at its Best

An emergency fund can be viewed as a type of insurance, although it is even better than that. Each month you put money into the fund (like insurance premiums) and if you need the money, there it is ready for you to use it. You never withdraw the money, unless you are facing an emergency and if you need to “make a claim,” you don’t need to prove anything to anyone – the money is available immediately. Even better, at the end of your days, that money belongs to you so that every premium you paid become part of your estate.

Freedom

Many people, at some point in their life, are unfortunate enough to find themselves in a situation that is unbearable. Without financial stability, those people will have no options, but to continue in their current state. That may be a relationship that is unbearable or a job that you can’t stand. With an emergency fund, you may be able to open your own business, start trading, or go back to school, but without the funds, these options will be impossible.

Job Loss

Most people who leave their jobs and have no other job lined up to start immediately, do not leave voluntarily. The risk of losing your job is generally considered to be the number one reason for having an emergency fund, because with no money coming in, you will need another source for paying your bills.

Major Medical or Dental Expenses

Medical events can be extremely expensive, particularly without health coverage. However, even with health coverage, when you take into account co-pays or other related out-of-pocket expenses, medical events can be very costly. The same is true for serious dental emergencies. Even a single event can be financially catastrophic if you have no emergency fund.

Repairs

The most common emergency repairs include car repairs and home repairs and some repairs cannot wait until you have saved up for them. A broken-down car so you can’t get to work needs to be fixed immediately. A leaking roof or broken heating/ cooling system probably can’t wait. Even if you have home insurance that will cover the repairs, the high deductibles will require you to have a sizeable sum of cash handy.

Bottom Line

Anyone who has faced a financial emergency will tell you that their emergency fund saved them. Don’t become one of the people who had no fund and has still not recovered financially many years later.

Do I Need an Emergency Fund? – 8 REASONS That Say YES!

emergency fund

Do I need an emergency Fund? How can I have an emergency fund if I hadn’t one till now? Is it necessary? My life is well enough then why do I need to have an emergency fund? If such questions came to your mind after reading the title, then this post is going to help you a lot. If you feel that because of having a comfortable life and high paying job, you don’t need an emergency fund, think again. No matter how financially strong you are but life will always find ways to throw curves at you, beyond your expectations. Even if you can’t imagine a scenario where you will be in need of rescuing then remember that life always gives beyond expectations. Whether it is happiness or hardship. Unexpected expenses can tuck away your meager savings. Hence, it is advisable to have four to six months of salary as an emergency fund. This can be your saving grace during your tough times.

Here are some situations, where you might need emergency funds. You can easily relate yourself with these situations. These are the 8 reasons why one needs an emergency fund or should have and emergency fund:

  1. YOU LOST YOUR JOB

It can be very difficult sometimes to get another job which would pay you the same level of income, that too in a quick time. While stuck in such a situation, if you are having emergency fund has at least two to three months of salary then you can take up the first job that comes along to you- while continuing your search for a better job. Otherwise, you will be forced to take up the very first job which comes to you even if you don’t like it.

  1. ILLNESS

This can be disastrous. Illnesses are something for which you can never be prepared. If you are too sick, your management team might fire you. You will lose your full salary. An emergency fund can help you to survive until you recover from illness. Even if you have medical insurance, you may need to pay the bill first hand and then claim for insurance. It can happen that your medical insurance plan doesn’t cover every medication. On one hand, you will be struggling with illness and on the other hand, you may find it difficult to pay the bills. Emergency Funds can be very handy in such situation.

  1. DOUBLE BURDEN

Your best friend or your relative moves in with you as they are facing crisis. Now what? You were struggling with your own crisis but now it is multiplied by two. Having an emergency fund will help you in taking care of someone close while you can stay afloat. There are always some people in everyone’s life to whom they can never say no. So this situation cannot be denied.

  1. SOMETHING EXPENSIVE WHICH YOU CAN’T MISS

You saw an amazing bargain or discount on something which you were looking for a long time, but it’s still costly. Or you realize a day or two before your spouse/ partner’s birthday and anniversary. An emergency fund can help you in such tight situation where you have no time and all you need is money. You can easily buy a perfect gift for them without burning a hole in your pocket or by disrupting all your monthly budget plans.

  1. UNEXPECTED PROFESSIONAL CHANGE

You are being promoted. Congratulations. But wait, the promotion comes at a cost of you moving to a totally new place. Moving to a new place can be expensive. You will need an emergency fund to cope up with your expenses in such a situation. This was a positive and favorable change. What if the company in which you were working shuts down overnight? Or company decides to shift office and you realize it will be too tiresome from your correct flat to travel to the new office destination. Unfortunately, without a buffer of savings; you will struggle a lot, both financially and emotionally.

  1. EVICTION

If you are a working class person, very few of you would be living in owned flats. Most of us have to rely upon rented apartments. What if you are asked to vacate your flat in a short notice without any warning? It happens many times where you aren’t given a proper reason and landlord or flat owner just asks you to vacate your flat. It can truly be a budget-buster.  Moving to a new flat is indeed very costly, as you have to move all your belongings with you. Also, you will have to take up the very first option of house or flat which comes to you as you cannot remain outside for long. So in such a tight situation your emergency fund will protect you from dent in your pocket as even in a new place you will have to come up with funds right away.

  1. CREDIT/ DEBIT CARD SEIZED

You lost your credit card. Or your debit card gets stolen. Although, you will soon recover from such incident. But it might take a while to sort it all out. You may not have access to your credit cards or debit cards as you would have requested the bank to seize them.  For some days or perhaps, weeks, you will have to rely upon you saving as in some cases; bank even put the primary account on hold. If you a separate emergency fund, it can be lifesaver for you!

  1. TAX OR BILLS

You should never ever forget to pay taxes or bills! It can happen sometimes; that you forgot to pay back your bills or your credit card was declined. Some people even forget to pay taxes on time. So if you missed the deadline of advance tax payment, better you pay it off as soon as possible. As it is not a great idea to mess with tax officers. If you have an emergency fund, you can go ahead and clear all your dues, without losing a large chunk of your salary.

All these things and many more can collapse your financial freedom. They might force you to take loans. Loans are stressful. It damages your finances. Above mentioned points can be minimized by maintaining an emergency fund. To open an emergency fund, all you need to have is a firm will power, strong commitment towards yourself and some cash. Just open up a savings account and vow to yourself to put some money in it each week or month. And forget about the account until or unless you face an emergency.  Never rely on this money. Always tell yourself that it is for an emergency. It’s not your saving which you will use to by the bike you were waiting for so long. Ask you bank to do it for you automatically, so that you don’t have to think about it.

When you face an emergency, this emergency fund will be there to save you. If you have an emergency fund, you can tackle the hardships which life will throw at you. It is better to stall some of your advanced planning to save money for an emergency fund, rather than being in crisis. If you still have not started an emergency fund, start it. One day you will be glad you did it.

5 Ways to Get Money in an Emergency

Emergencies happen and it is typically between pay periods or right after paying a bill. Not everyone has an ample emergency cash fund setupPayday loan for emergency situation or the available funds on-hand, especially those with bad credit. No matter what your financial situation is, there are ways for you to get the funds you need in an emergency.

Payday Advance

If you have a stable source of income and a valid checking account you can obtain a payday advance. The amount that you can borrow is based upon your income. Most people qualify for these types of loans and often there is not credit check.  Most lenders or banks just verify you have a job and direct deposit. There are also advantages to using an online advance site than having to drive to your local one.

Auto Title Loan

When you have a paid off vehicle with a clear title, an auto title loan is another option when you need emergency funds. With this, the repayment terms are setup like an installment loan since the dollar amounts lent are often several thousand dollars. Your vehicle is appraised and a loan offer is extended to you. The lender has possession of the vehicle title until the loan is paid in full. If you miss a payment and do not stay in contact with the lender, they can repossess the vehicle.

Quick Cash Loan

There are options for quick cash loans that are obtained online. These loans do vary by state and some states do prohibit them. Always double check to make sure that the lender is licensed to loan money in your state before applying and review their terms. Some work just as payday advances do and others are repaid as installment loans.

Borrow from Friends or Family

Although it is difficult, asking a friend or family member to loan you money is an option. It may require borrowing from several people and making payment arrangements with each one, but this is an option. Make sure that the funds are paid back in a timely manner.

Pawn Shop Loan

Pawn shops do buy items but they do also make loans, which is why the term pawn is used. These loans are generally from 90 to 120 days with a small amount of interest added on. The pawn shop will appraise the value of the items you bring in and will offer a loan amount. Negotiations are possible but this is cash-in-hand immediately.

Use these options to obtain emergency funding. These options can help avoid utility disconnections, evictions, foreclosures and can help pay for emergency medical services. Based upon the urgency of your need for funds, use the option that best suits the situation.