Are you not convinced that you need to build an emergency fund? Look no further. Herein, I lay out seven reasons why you should build and emergency fund that will keep the guessing out of, “What constitutes an emergency?” as well as what you should be saving for.
1) Health Issues
If you are someone who gets sick often, then it is important to keep an emergency budget for possible medical expenses. Even if you do not get sick often, having a stash of money is important because of possible emergency room visits or surgeries. If you have an FSA, you could have potentially not set aside enough money. Even if you did set aside a fair share of money, you could drain that account faster than you may have expected on top of having deductible and co-payment expenses.
2) Home Maintenance
Home insurance does cover a lot of expenses. But does it cover everything? No. You could end up giving out large sums of money to pay for things such like deteriorating balconies. That is not something expected or covered by most home insurances. You must be careful when caring for your home, but that doesn’t ensure that you won’t have to have big out of pocket expenses.
3) Lay Offs
If you get laid off, there will be a need for a large sum of cash that can cover your cost of living in the interim between you getting a job and you getting laid off. The average length of time that someone is left unemployed in this type of situation is forty weeks. So, saving up for ten months of wages is important to keep in mind when budgeting for an emergency fund.
4) Unexpected Travel
When there is a death in the family, it is truly a tragedy. To have to spend an immense amount of cash on a plane ticket, especially last minute, could really hurt your credit score if you have to put it on your credit card. This is like kicking someone when they are already down. Having an emergency fund would completely cover the cost of this ticket, and you could sleep soundly at night knowing that interest rates aren’t killing you.
5) Unexpected Veterinary Bills
If your pet is getting older, they are more likely to have emergency needs. Pet insurance can cover parts of these expenses, but what if it is an emergency and they need a surgery? This could leave you with thousands of dollars less in your bank account or racking up more money to pay off on your credit card.
Funerals can cost anywhere between $10,000 and $20,000, depending on how extravagant they are. Life insurance can cover part of it, but not always all of it. Besides, you wouldn’t receive that money back from the insurance company right away, so you would have to shell out the cost up front. This could put a serious damper on your funds.
7) Automobile Needs
Sometimes our automobiles do not work how we want them to. If you break down on a road trip, for example, there may be only a few mechanics nearby that can help you. Not all places accept credit cards, and so, that would leave you with draining your checking account on your debit card.
These seven reasons should surely prompt you to develop an emergency fund. They are extremely important to build over time so that you can protect yourself from unforeseen expenses.