7 Reasons You Should Have An Emergency Fund
You will find that nearly every personal finance blogger and financial expert you speak to will recommend that you have an Emergency Fund. Your parents or friends have also probably told you to put away money for a “rainy day”. That’s because it is a great idea.
Usually it will be a dollar figure that represents your expenses over a period of time. Sometimes it is simply a number that makes you feel comfortable knowing it is there if you need it.
An emergency fund needs to be treated as exactly that, for emergencies only. Not your new TV, your car service or your kids school fees, those things should be in your budgeted expenses.
Below are 7 reasons that I believe you should have an Emergency Fund.
- Peace of mind – financial stress is a major cause of relationship breakdowns, physical and mental health issues. When you stress about money it can cause issues in many other areas of your life without you even realizing it. Having a sum of money aside to cover any emergencies, such as loss of income, medical emergency, unexpected vet bills etc, can relieve that stress.
- Cover loss of income – there are many reasons you could suddenly lose income, redundancy, injury, your company going bust. Having an emergency fund that covers a few months of expenses can help smooth out those speed bumps until you can get back on track.
- Medical Emergency – of course you should have health insurance, however there are often gaps that need to be paid and depending on your health insurance provider these can be quite large. This can also include emergency dental costs.
- Emergency pet bills – again this is something you can get insurance for but similar to your own health insurance there will be situations that are not covered or only partially covered by your issuance.
- Car repairs – Catastrophic damage or mechanical failure of your car can be a very large unexpected expense, not only that it can cause interruptions to your daily life and for some people affect their ability to earn an income.
- Unexpected travel – if you have friends or family that live interstate or in another country there may be times when you need to travel to see them on short notice, often if they are unwell. Not only are short notice flights and accommodation generally more expensive but you could also be in a position where you may lose income from being away from work.
- Funeral costs – this one is a sad reality of life – funerals are expensive and sometimes unexpected. This is a time when you do not want to be worrying about money.
The size of your emergency fund will vary depending on your expenses, your age, the stability of your job and many other reasons. You will hear many different opinions from one months worth of expenses through to one year. For me I target an emergency fund based on 6 months. I would also recommend putting it a separate high interest account so you are not tempted to use it for non-emergencies.
2 thoughts on “7 Reasons You Should Have An Emergency Fund”
Hey TSD! These are some great and valid reasons to have an emergency fund. I’m particularly with ya on the first one (Peace of Mind), because this is exactly why I have one: to take the stress out of my financial goals.
Thanks for commenting Financeforgeek! There are many good reasons but no. 1 is also my favorite. Stress is inevitable in life and at some points beneficial but I believe stressing about money is one of the worse kinds and rarely helpful. Having that chuck of money available to you can certainly go a long way to alleviating that.
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