Why You Must Have an Emergency Fund
Updated: April 2, 2020
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Why do you need an emergency fund, exactly? Well consider this- life is going great- you are living the dream, you can pay all of your bills on time, and you STILL have a little money left over after each paycheck for your weekly Target splurge. You are feeling comfortable with your finances.
Then BAM! The carburetor goes out on your car. You are stranded on the side of the road stressing about how you are going to pay for the repairs. Your financial security is gone in an instant.
Sound familiar?
We have all been there at some point in our lives. Most Americans are not adequately financially prepared for life’s little mishaps. In fact, only 62% of Americans have $1,000 in savings to cover emergencies and 21% don’t have a savings account at all.
Let’s take a look at 7 reasons why you MUST have an emergency fund set up.
1. Illness/Injury
Unless you are Superman, there will likely be a time where illness or injury strikes. Illness/injury is a financial double whammy because not only does being injured or sick impact your ability to work, but it is also super expensive. In the United States, a simple trip to the ER can set you back thousands of dollars. Even Superman succumbs to kryptonite, so be prepared! This is one of the most important reasons to have an emergency fund because this is one of the most common reasons a person’s financial plan goes off the rails.
2. Loss of Work
You are awesome! You are a rockstar at work and everyone loves you. Despite all of that, chances are that you will involuntarily be out of work at some point in your life. Whether you are laid off, need to take some time off to deal with personal matters, or are forced to quit due to the working environment/conditions, there is a very real chance you will have to deal with this during your career. Unfortunately, loss of work = loss of income. Having an emergency fund can help alleviate some stress during these periods of time.
3. Housing Emergencies
Call me crazy, but housing is one of those must-have items and can be hella expensive. Expenses pop up when you are least expecting them (and least prepared for them!). If you are a homeowner, everything will break at the same time. Like, that is definitely going to happen at some point, if not at multiple points in your life. When my husband and I moved into our home, we had a major basement leak, furnace issues, hot water tank issues, etc. Those things are not cheap, yo!
If you are renting, you are at the mercy of someone else. The owner may decide to up and move leaving you totally in the lurch and in the need of a ginormous security deposit for another place, moving costs, and more. Yuck! You never want to worry about where you and your family will sleep.
4. Needs of Loved Ones
We are nice people so we absolutely adore our friends and family. We would do anything to help them out. Unfortunately, we sometimes do have to do anything to help them. Life happens and stuff comes up for our friends and family. Sometimes, these needs are so dire that they have no one else they can turn to. It is important to have that financial security so you can not only help yourself but also help someone else (disclaimer: I want to make sure to add, if you give to someone else before you are financially fit, the reason better be super-duper important, I’m talking life or death here).
5. Children
Speaking of loved ones, children are really expensive. They are little cash-guzzling machines – diapers, formula, food, toys, car seats, clothes, more food, schooling, the list goes on. This stuff adds up and it adds up quickly! Not to mention, you have to pay to have the little nuggets in the first place. Whether you grow your family by having children or adopting, you want to make sure that your mind is fixated on the momentous joy of growing your family and enjoying them, not worrying about money.
6. Death
Alright, I’m going to be depressing for a minute. Life happens and unfortunately, death happens. You want to make sure that you have adequate finances if, Lord forbid, you have to deal with the death of a loved one. So many people are forced to make sacrifices in honoring those they love or dealing with their grief because they do not have adequate financial resources. You will have enough to deal with during these moments, finances should be the last of these worries.
7. Opportunity Strikes
I’m going to redeem myself here and get us back on-board the happiness train. Like everything else we discussed, opportunity can often strike when you are least prepared for it. We need to make sure that we are in the position to seize any opportunities that come our way. This may be a new business venture or a great job which may require relocation expenses. Never let lack of financial resources get in the way of fully realizing your awesomeness. An emergency fund allows you the security to take advantage of opportunities that may come your way.
Having an emergency fund affords you infinite freedom and security to deal with the game of life. Now that we know that this is super-duper important, check out this post to find out how you can quickly start an emergency fund even if you are living paycheck to paycheck.
Drop a comment below. What situations have you encountered that you needed an emergency fund? What challenges do you have in setting up an emergency fund? We would love to hear!
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That’s so true & an eye opener post! Emergencies don’t need an invitation & so we do need those funds with us!
http://www.mommyinme.com
Yes, they certainly don’t need an invitation! Thank you for reading!
Great advice! It’s so important to have an emergency fund. When we became parents we sat down and took a good look at our finances and made a plan. We’ve built ours up gradually and it’s so nice having that sense of security. You never know what could happen and you need to be responsible
That is fantastic. Kudos to you! So many people are unprepared for life’s little setbacks and it leaves them in a vulnerable position. Just think of the example you are setting for your children! Thank you for reading.
It’s terrifying to think of all the things that can go wrong. We’re building up our emergency fund currently. It brings so much peace of mind 🙂
That is awesome and great job! It does bring so much peace of mind, especially when you have a family. Thank you so much for reading!
no one likes talking about it, but you always have to have a safety net!
I agree, it’s not easy to talk about but it is essential! Thank you for reading!
Yes!!!! I totally agree! I started following Financial Peace University and it has changed my life, for the better!
Thanks so much for sharing this. Honestly I’ve been giving a lot of thought to this myself ever since my BF and I started saving for a house. But there should be other rainy day funds we just kind of squirrel money into, because as you said, life happens and we don’t want to be caught unawares. Thanks for this reminder! Found you via Blog Promo Group on FB 🙂
Thanks so much for reading! I’m so glad that you enjoyed it. I can’t wait to check out your blog! Heading over there now!
Totally agree! It always seems like all the emergencies tend to come all at once. So nice not to have finances to worry about at the same time you’re dealing with something else.
Megan
http://www.todayisthedaylifestyle.com
We hit our high individual out-of-pocket ($6,000) deductible for the last 4 years in a row. We have a new baby coming and I just hope we don’t hit the family $12,500 deductible as our family grows.
My emergency fund helps me feel less stressed in general because you never know what is going to happen and when one thing happens it seems like 3 financial things happen all at once! Great post!
We are learning this more and more! Having an emergency fund has LITERALLY been a life saver. Great read! I hope more and more people start getting financially wise. It’s so freeing!
I think this is a really really great post. Thank you for sharing!
So true and so important. This post reminded me to look into our situation and make sure we are still on track for the emergency funds. always nice to know its there
So true. Emergencies don’t happen on a schedule so it is much needed.
Great post and kick in the butt for me. We have had to use a lot of our emergency fund this past year and need to build it back up.
Thank you for sharing this post! I have been really concerned with our lack of savings. We have a little over 1K, but I know we need way more than that with a family of three and one more on the way. I know all of these reasons in my head, especially the housing issues, but it’s good to read it again in print!
I absolutely agree! I can’t imagine living without an emergency fund! How scary!
Grate Advice. Love your post
I think I need an emergency fund now! Thank you for the advice! Great post!
Always a great reminder. I have been an avid saver since high school because I was lucky enough to have parents educate me on money. This is huge to keep in mind, once you get your savings under control, don’t keep the tips/advice/knowledge to yourself! Help others, just like this post is doing 🙂
I know you’re right about this, I just hate the idea of putting aside money for something that might never happen when I have student loans out my *ss. But all of your points are so true and have made me think about it more seriously.
I love your post, sometimes we have to remind ourselves that life sure happens and being prepared is what makes the difference. The ER thing strikes true, I had my little girl in the US and 8 days after she was born she was sleeping all through the day and refusing to eat or drink, I went to the ER without insurance and I paid alot for her to be treated.
Oh no! I’m so sorry that happened to you. Things happen when you are least expecting them as your story illustrates. Thank you so much for reading!
I am a firm believer in an emergency fund as well. We just had to dip into ours because of unexpected car troubles! It was so much less stressful to know that we had that money there to rely on. Great post!
That is awesome that you had money set aside. Great job to you! The worst thing is to have to worry about finances during an already stresssful time. Thank you so much for reading!
We have made sure that we always have an emergency fund of at least 3 months worth of pay. We have had to use it for things like a down payment for a new car for myself with a new baby and then having to buy a car for my partner. It is so important specially with kids!
Awesome job! Too few people make this a priority so kudos to you! The peace of mind that it affords is simply priceless. Thank you so much for reading!
Great post! I’ve been married nearly two years and my husband and I have 3 months of expenses on reserve! Thankfully, we’ve not had to use it but if the need arises (god or bad), it’s good to know it’s there!
That is awesome. Great job! Most people haven’t taken the steps you have , you should be really proud of yourselves!
You can literally never go wrong with having an emergency fund. House repairs alone will always come up and you’ll feel much better about the situation because at least you’re prepared.
My husband and I were just talking about this yesterday! This is such a great reminder. You never know what will happen! Especially because he travels for work. Thanks for sharing.
This is great advice! I always have an emergency fund because I can’t stay feeling helpless if something were to happen. I know that many see this as a negative way of thinking but life happens!
xo, Kimberly
http://www.lifeofkimberly.com
That is awesome and not negative at all. Life happens regardless and it is best to be prepared. Great job on having an emergency fund set up! Thank you so much for reading and commenting!
Could not agree more; an emergency fund is so necessary. I think it is also a good idea to have an emergency credit card just incase, if you can. Life happens and curve balls are thrown everyday. Best to be prepared for them 🙂
Yes, that is a good idea but that should be your last resort. I see a lot of people get into debt when these situations arise and it is tough to dig out of that. Having liquid savings is the safest route. Thank you so much for sharing and reading!
My husband crashed his car in October. Thank goodness we had an emergency fund because those next few months were very hard on us financially!
Oh no, I hope he is okay! I am so glad that you had an emergency fund set up. I’m sure that took a lot of burden off of you and your husband during that tough time. That is exactly why it is important to have one. Kudos to you. Thank you so much for reading and sharing your story.
I always have a little extra saved. But I need to save more after reading this post.This is a great post people do not always save for a rainy day.
That is great that you have savings already, that is a great start! I would just focus on adding a bit more each week or each quarter. Maybe add 3-5% more each paycheck until you get to where you need to be. Thank you so much for reading!
We are terrible about saving for this extra fund. Your list of why we need it definitely helps to reinforce that we ACTUALLY NEED it!!
Yes, everyone does! Every little bit helps, even if is just a few dollars per week. Thank you so much for reading and commenting!
While a necessity in the many ways you stated, an emergency fund is definitely a privilege. If I wasn’t barely making ends meet, I think I would be OK with setting money aside in case of emergency. Living paycheck to paycheck is definitely very scary.
It is very difficult to set money aside. I tell clients even if they can set aside $5 a paycheck that gets them in the habit of saving and starts to add up quickly. Every little bit helps. Thank you so much for reading!