5 good reasons to have an emergency fund
Read time: 3 minutes
When it’s a challenge to pay your basic expenses from month to month, it can seem impossible to set aside money for emergencies that may never happen. But you need only look at the effects of the COVID-19 pandemic on the U.S. economy to realize how abruptly things can fall apart.
A December 2020 MagnifyMoney survey found that 43 percent of consumers with an emergency fund needed to tap their funds during the pandemic. That number jumped to 64 percent for those who were laid off or furloughed.
While a pandemic is a once-in-a-century occurrence, any financial emergency has the potential to devastate even the most carefully planned budget. If you’ve put off creating an emergency fund in the past, here are 5 compelling reasons to create one now.
Reason 1: Job loss.
As the pandemic showed, businesses close and jobs disappear without warning. Financial experts previously advised people to have three to six months’ worth of expenses saved to tide them over, but some experts are revising that figure to 12 months, to allow for increasingly longer periods of unemployment.
Reason 2: Health expenses.
It only takes one ER trip or an impacted wisdom tooth to create financial havoc, especially if you don’t have health or dental insurance. Even with insurance, you may still have to cover deductible and co-pay costs that exceed what you have in your flexible spending account…if you have one.
Reason 3: Home or car repairs.
Yes, you can use a credit card or a payday loan to cover car repairs, but then you’re saddled with debt that grows larger each month. And even if you have homeowners’ insurance, not everything may be covered—for instance, an old refrigerator that needs to be replaced ASAP.
Reason 4: Pet health issues.
What if your dog, cat, ferret, etc. has a medical emergency or needs surgery? Even today’s pet insurance policies don’t cover all costs. The emergency vet visit alone can cost several hundred dollars, and depending on the type of surgery, you could end up paying several thousand dollars.
Reason 5: Unexpected travel for family illness or death.
If a family member or friend who lives far away is hospitalized or passes away, you may want/need to be there. Plane or train fare isn’t cheap, and hotel expenses can add up, too.
There are a number of smaller but important, reasons for accessing an emergency fund. A lost cell phone; a dying computer; sick days when you don’t get sick pay; broken eyeglasses; kids’ sports uniforms…every little expense adds up.
That’s why you’ll never make a better money move than starting an emergency fund, and here are some simple ways to kick your savings into gear:
Set up a savings account separate from your regular checking and savings.
Start small; even $5 per week will add up over time.
If possible, have the amount that goes to your emergency fund automatically deposited from your pay, so you’re not tempted to spend it.
Set achievable short- and long-term goals. Short-term: Deposit $5 four weeks in a row; increase your weekly deposit by a small increment. Long-term: Save $500.
Deposit “found” money to increase your savings, i.e., the change in your pocket each night, birthday gifts of money, bottle deposit money, refunds.
Don’t completely cut out all the things you enjoy, or you’ll be less likely to stick with your savings plan.
The key is to get started, so you and your loved ones can enjoy the best benefit of all: Peace of mind that you’ll have something to fall back on if the worst happens. If you’d like help achieving that peace of mind, just complete the online contact form or give us a call. We’re here to help!