12 Important Reasons You Need an Emergency Fund

When you were young, your parents may have nagged you about the importance of saving money. And now that you're a full-fledged adult, you’ve probably seen your share of personal finance articles touting the importance of having cash in the bank.

If you’ve never had a financial emergency strike, then you may be of the opinion that saving money isn’t all that important. After all, why save when you can borrow as needed? But borrowing money means racking up interest charges, hurting your credit, and causing yourself a world of needless stress. A better bet is to have money on hand in case unexpected expenses strike -- specifically, enough money to pay for three to six months of essential living expenses. That’s what a solid emergency fund looks like, and here are several reasons why you really need one.

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You never know when you might lose your job out of the blue. Internal changes, financial troubles on your employer’s part, or a new boss you suddenly clash with could leave you out of work and out of income. With an emergency fund, you’ll have the cash on hand to pay your bills while you look for a replacement job. And if you think you can get by on unemployment benefits, think again. Usually, those benefits will replace half of your former paycheck at most.

ALSO READ: How to Handle Health Insurance If You're Now Unemployed Due to COVID-19

If you’re salaried, you get the same amount of money each week regardless of the work you do. But if you’re self-employed and are paid based on productivity, a dry spell could put you at risk of not paying your bills. An emergency fund can save you from that fate, replacing some of the income you’re missing out on when clients don’t seem to need you.

You can do your part to take care of your health, but sometimes medical problems can creep up anyway. The same holds true for injuries -- you could slip and fall out of the blue. Without an emergency fund, you’ll risk racking up debt if your health insurance plan has a hefty deductible and you’re forced to meet it in one fell swoop.

Not only can a sudden illness or injury cost you money in bills, it can also mean that you’re unable to work for a while. If you’re not eligible for paid sick leave, which is the case for anyone who’s self-employed, then you’ll be out of luck without a stash of emergency cash.

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Anyone who owns property knows that issues can arise out of nowhere, and all it takes is a leaky roof or busted heating system to wreak absolute havoc on your budget. With an emergency fund, you’ll have savings to tap when these and other costly expenses arise.

ALSO READ: Here's What the Average American Spends on Home Repairs and Improvements

Have you ever gone to turn on your car only to find that it just won’t start? When you own a vehicle, you risk this and other problems, and usually a car repair is something you can't ignore. With an emergency fund, you won’t have to.

There may come a point when you need to travel to visit a sick relative or go to a funeral -- scenarios you likely won’t get much warning about. Without emergency savings, you may have no choice but to charge your airfare and hotel on a credit card, but with money in the bank, you’ll have less stress when you suddenly need to pack your bags.

Taxes can sneak up on us when we don’t expect them to. You might think you paid enough tax during the year only to find that you owe the IRS money when you actually submit your tax return. And in that scenario, an emergency fund can help you avoid the interest and penalties you’d otherwise accrue for paying the IRS late.

Many people who move get to plan and save for that event, but what if your need to move is sudden? What if you’re forced to relocate quickly for a job or to care for an ailing family member? Hauling your belongings across state lines can be a costly endeavor, but if you have an emergency fund, you’ll have a way to cover that expense.

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Children come with all sorts of unexpected bills. Your child care center might close, leaving you no choice but to enroll your kids in the pricier one down the road so you can keep your job. Or, your children might outgrow their shoes, clothes, or sports equipment at a time when new stuff isn’t in your budget. With an emergency fund, you won’t have to rack up debt in that scenario.

ALSO READ: No Emergency Fund and No Job. Now What?

It’s no secret that it costs money to feed and care for a pet, but just like humans can encounter sudden medical issues, so too can animals. The problem? Whereas people can often turn to their health insurance providers to pick up a lot of the tab when they’re sick or need surgery, with a pet, you’re often forced to absorb that cost on your own -- hence the need for an emergency fund.

The COVID-19 crisis may be the most extreme scenario any of us have lived through, but it’s also a perfect example of why everyone needs an emergency fund. In the past three months alone, millions of Americans have lost their jobs and struggled to put food on the table. Others may have had a hard time stocking up on supplies when the pandemic hit because they didn’t have the money to buy extras. Though the COVID-19 outbreak has no doubt been stressful for everyone, it was probably just a touch less stressful for those who had money in the bank.

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