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3 Reasons You Need an Emergency Fund

By Christy Bieber – Apr 15, 2020 at 6:15AM

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This fund could be your lifeline during troubled times.

For years, I've written about the importance of having an emergency fund -- or money available to cover three to six months of living expenses. Unfortunately, in light of the coronavirus crisis, the need for an emergency fund is no longer a theoretical one for millions of Americans. 

If you still aren't convinced having money saved for emergencies is essential, here are three key reasons why you absolutely need to begin putting aside cash for surprise expenses or unexpected drops in income. 

Smiling woman putting money into a piggy bank.

Image source: Getty Images.

1. Unexpected, and even unimaginable, events can occur

A few months ago, no one would have ever imagined the majority of the U.S. economy would be shut down due to government stay-at-home orders necessary to slow the spread of COVID-19. 

While the coronavirus pandemic is a once-in-a-lifetime black swan event, the point is that no one ever knows when an emergency is just around the corner. You may think your job is secure and your health is sound, but you need to prepare with a hefty emergency fund just in case that turns out not to be true. After all, even "unsinkable ships" can hit icebergs. 

2. Help sometimes takes a long time to arrive 

The government is providing help to families affected by the coronavirus crisis. And assistance often is available during times of trouble, whether that aid takes the form of unemployment benefits or an insurance check. Unfortunately, it often takes time to get help. 

For example, government stimulus checks could take weeks to arrive -- especially if the IRS doesn't have your direct deposit information. State unemployment offices are also facing a deluge of applications, leaving many unable to apply successfully.

Even outside of this unprecedented crisis situation, your car insurance might take weeks to pay after an auto accident that totals your vehicle. Or the loan you apply for when you need a sudden influx of funds could take weeks.

You don't want to have a pressing expense you need to pay now and have money coming later, so you need an emergency fund with cash that's accessible to you immediately when the need arises. 

3. You don't want to be forced to borrow or sell investments at a loss

If you don't have money in an emergency fund when disaster strikes, you'll need to come up with it somehow.

This could mean selling investments at a loss during times of economic trouble, thus losing the chance to take part in the recovery. Or it could mean you end up having to take out a loan, burdening your future self with monthly payments and interest due. 

An emergency fund allows you to avoid being backed into a corner where you have to make bad financial choices that cost your future self a lot of money.

Emergency saving is essential 

If you're facing the coronavirus crisis without an emergency fund, you do have options. But you should aim to create one if you still can, perhaps by saving your stimulus check and tax refund.

If you can't save for emergencies now because you're living in one, hopefully the assistance you need will come to you quickly. And when the crisis passes, prioritizing saving for emergencies should be at the top of your to-do list once you've financially recovered. 

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