If you’ve been through a major emergency that required a significant budget, you’ll know just how important an emergency fund can be. When such emergencies show up, you won’t have to think. That’s when an emergency fund becomes invaluable.
What is an emergency fund?
An emergency fund refers to money set aside to cover life’s unexpected events. If you were to lose your job unexpectedly, for example, the emergency fund would keep you going until you find another job. The same applies if an expensive expenditure comes up. For instance, if you’re involved in an accident, you’ll need money to cover your medical bills as well as other damages. An emergency fund would be a godsend in such circumstances.
Reasons you need an emergency fund
If you’ve not done so yet, the following are some of the reasons you should create an emergency fund;
It’s essential when trying to get out of debt
Emergency savings can help you cover expenses you failed to budget for including car repairs and unexpected medical costs. In many cases, we don’t plan for things such as car crashes. Therefore, a head-on collision can surprise you. An emergency fund would allow you to navigate such storms without having to take a new loan.
It can be life-saving if you have only one job
The reason you’re always encouraged to have more than one source of income is that jobs can end unexpectedly. With two jobs, even if one of your bosses fires you, you’ll have other income sources to depend on. However, if that was your only job, getting fired can be catastrophic. Having an emergency fund would help you navigate the tough times.
It can be a source of security for contractors
Being self-employed or an independent contractor is good as it allows you to set your working hours. But, being self-employed also means you won’t be able to claim employment benefits. To avoid going broke in between contracts, you need to create an emergency fund. Additionally, you may need an emergency fund for when business is slow.
It can be helpful if you have medical issues
A serious medical condition can be very frustrating, not only health wise but also from a financial point of view. Conditions such as cancer, for instance, require routine tests every few months – tests that cost a lot of money. Also, such conditions may cause you to spend less time at work, further weakening your financial strength. To avoid getting to a point where you’re forced to take out a loan from lenders such as MoneyBoat UK, you need an emergency fund.
Save as much as you can
How much you need to save in the emergency account is entirely up to you. According to financial experts, you need at least three months worth of your salary. This way, if you lose your job, you’ll have enough money to get by until you find a new job. You’ll need even more money if you’re a family man, with most experts recommending 12 months worth of your salary.