Saving money isn’t always exciting, but an emergency fund (also known as a rainy-day fund) is imperative to your financial health. It only takes one unexpected expense to topple your finances. The lack of an emergency fund can result in taking on additional debt or not being able to pay for a critical expense…like your child’s braces.
Before I share the things that can make or break you without an emergency fund, I want to add that most of these items are great items to include in your budget, but your budget may not always cover what you need! For example, we put money aside monthly in our budget for medical bills, but the month we took 3 out of 4 kids to the emergency room in 24 hours for completely non-related things required way more money than what we had budgeted!
Here are 6 things that are worth dipping into your emergency fund for…
1. Medical bills.
It’s no secret that medical care is outrageously expensive in the United States. A simple out-patient operation, like a hernia repair, might only take 30 minutes. But it can easily cost $15,000 or more. How long would it take you to pay back $15,000? Even if you have insurance, you might still be on the hook for a deductible of several thousand dollars.
2. Automobile repairs.
Once the warranty has expired, your automobile has the potential to become a financial disaster. Once you’re no longer making an automobile payment, continue making the payment to yourself. Save the money for future repairs or your future automobile. Also, be sure you’re taking care of car maintenance on a regular basis! This will save you a bunch of money!
* At some point, all cars become more expensive to fix than they’re worth. Ensure that you have the funds in place to minimize the amount of debt necessary to obtain a new car.
Currently, 10-12% of us will be without a job at some point in the next 12 months. Over the course of a lifetime, the number is much larger. Could you survive for at least 6 months until you find another job? What would happen to your family, home, car, and insurance?
4. Major home repairs.
Replacing a roof, a/c unit, furnace, repaving the driveway, or replacing appliances can cost more than the average homeowner has sitting around in his bank account. While I recommend having a sinking fund (a fund you put money into every month for upcoming repairs), sometimes your sinking fund doesn’t have enough in it. While some repairs can wait, others cannot.
Please keep in mind that even if you were to have a flood or a fire, your homeowners’ insurance may not cover everything.
5. Funeral expenses.
Funerals are expensive. And even if you don’t have to pay for a funeral, you may have to travel half-way across the country to attend one. Deaths are often unexpected, and this isn’t an item that people build into their budgets. If there’s one truth in life, it’s that everyone dies eventually. There’s no escape.
6. Dental expenses.
A broken tooth, too many teeth, not enough teeth, or mishap with a baseball can cost more than your bank account will support. Even if you have great health insurance, most dental plans leave a lot to be desired, especially with regards to cosmetic issues.
The best time to start an emergency fund was 10 years ago. The second best time is right now.
Start setting aside a percentage of your income and seek to increase the amount over time. Start with a goal of $1000 and do whatever you can to get that $1000 set aside in the shortest amount of time. Sell things you have sitting around the house. Take unexpected money you get and add this to your emergency fund. Make small changes to way you handle money. Small changes can lead to big savings!
Next, aim for at least six months of living expenses. That will be enough to handle most financial emergencies. Anything you’re able to save beyond that can be invested with a more long-term focus.
Emergency funds have advantages you may not have considered:
1. You’ll be much more relaxed. Knowing that you have money available to meet your unexpected financial needs is reassuring. You’ll worry much less.
2. It prevents poor financial decisions. When you need cash, but don’t have any, it’s easy to make financial mistakes that can be costly. Payday loans and the use of high-interest credit cards are two examples.
An emergency fund is a financial necessity. It provides a cushion for life’s unexpected twists and turns. One financial mishap can easily undo years of your hard work. Begin your emergency fund today and secure your financial future. It’s never too late to get started.