Published in: Banks | Aug. 15, 2019

What an Emergency Fund Can Actually Do For You


Why is it worth having an emergency fund? An emergency fund can make a major positive impact on your life.

hand inserting quarter into piggy bank

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Almost every personal finance article you read will tell you that you need an emergency fund with three to six months of living expenses. This can seem like a ridiculous amount of money to save, and it can seem impossible to actually set aside that much money. 

But the reality is, having a big emergency fund really is a worthy goal. That’s because an emergency fund can do a lot to protect your finances, family, and peace of mind. In fact, here are just a few things an emergency fund can do for you that should hopefully help convince you that it’s actually worth the effort to save up a big sum. 

An emergency fund can keep you out of debt

Unexpected expenses are inevitable, and if you don’t have the cash to pay them, chances are you’ll rely on credit cards or other sources of financing, such as personal loans, or even high-interest payday loans.

Once you’re in debt, some of your money is earmarked for paying back your creditors before your paycheck even comes. And you have to pay back those creditors with interest. This can be a problem, because it will be even harder to live within your means once you’ve added debt payments to the mix. Plus, you’re making all of the purchases you pay interest on cost more than they should. 

If you have an emergency fund, you will never have to fall into this trap. You can avoid borrowing to cover surprise costs so that you won’t later find yourself dealing with the further cash shortfalls caused by that borrowing. 

An emergency fund can stave off financial disaster

When you have no emergency fund, losing your job could mean that you’re unable to pay off your mortgage, your credit card bills, your car loan, or other debts you owe. This could lead to ruined credit, foreclosure, repossession of your vehicle, or other financial disasters from which it can take decades to recover.

If you lose your home to foreclosure, your car to repossession, or your good credit to late payments, it can be incredibly difficult to get back to the financial position you enjoyed before. 

WIth an emergency fund, you can make sure these kinds of catastrophes don’t happen. If you lose your job or get sick, you can still pay your mortgage for months until you find another job, or sell your home and downsize to a place you can more easily afford. You can keep paying the bills, protect your car and credit rating, and ensure you remain financially afloat while you resolve the emergency. 

An emergency fund can spare you from difficult choices

Recently, my dog got very sick, and the only cure was an expensive surgery no pet insurance would cover, because it’s not performed in the United States. Because I had an emergency fund, I didn’t have to choose between my financial stability and spending the money necessary to save my dog.

This is just one of many situations for which not having an emergency fund may have meant having to choose from avoiding debt, maintaining financial stability, or doing something important. 

Not having an emergency fund, for example, can force you to choose between deferring repairs on your home or borrowing to make fixes when something goes wrong -- and deferred repairs can lead to bigger problems later. Or, you could have to choose between going to the doctor when a symptom shows up, or waiting it out and hoping you get better quickly so you can avoid an unexpected co-pay.

You never want to feel like you can’t do something important because you’d end up deeply in debt if you do -- and an emergency fund can help make sure that doesn’t happen to you.

An emergency fund can help you stop worrying about money 

Not having the cash to cover emergencies is a major source of financial stress. The thought of a car breakdown or other unexpected expense can keep you awake at night worrying about how to pay the bills.

When you have the money set aside to cover any problems that arise, you don’t have to worry about what you’d do if something goes wrong. You’ll have the peace of mind that comes with knowing you are prepared no matter what life throws at you. 

You need to save up an emergency fund today

Are you convinced yet about the benefits of an emergency fund? With all these important benefits, it makes a lot of sense to start saving for emergencies today if you don’t already have a fund in place. Just open a savings account and make a plan to transfer spare cash over. The more you can transfer each month, the quicker your emergency fund will grow, and the sooner you can start benefiting from the protection it provides. 

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