The Benefits of Having An Emergency Fund in Place


In my post Are You Looking for Financial Peace of Mind? This One Thing Can Help Provide it,  I discuss what is needed to provide you with a financial peace of mind.  One of the key necessity to provide you with a financial peace of mind is to be prepared for the unexpected.  You can prepare yourself by having an emergency fund in place.

Having money set a side for some unknown event that you not sure when that event will occur does not sound fun or even worth doing.

An emergency fund is one of the most critical steps to help you establish a simplified financial lifestyle as well as keep you on the right financial path even when those unknown emergencies occur and try to set you back financially.

You just don’t know when:

Your car may need a major repair

An unexpected medical expense will occur

A car accident will happen

Your employer decides to downsize

An unexpected home repair or deductible

You say “Wait some of these unexpected emergencies should be covered by my homeowners or medical insurance will cover this expense”.  That is true it may cover some but what about the portion it does not cover.  Where will you find the money?  For example, your medical insurance may cover up to 80% of your medical expenses.  So guess what?  You’re responsible for the remaining 20%.  Another example might be when you file a claim with your homeowners insurance.  You will have to cover the policy deductible, which can be several thousand dollars.  Where will you get the money to pay the medical expenses or insurance deductible?

This is why it’s critical that you establish an emergency fund which can cover these unexpected expenses.  Not having an adequately funded emergency fund can place a significant financial burden on you.

Still debating if you need an emergency fund in place?

Here are the benefits to having an emergency fund:

No additional debt

Having an emergency fund enables you to avoid taking on additional debt to cover unexpected expenses.  Many times if you do not have an emergency fund you end up using a credit card, using funds  from some type of personal line of credit such as a home equity line of credit or delay paying one of your other bills to cover you emergency cost.

By using debt to cover an expense it only increases the cost of the unexpected expense.  Then you have to figure out how you’re going to pay off new debt.

This once unexpected debt can set you back financially for several months or years depending on the cost of the expense and your ability to pay it back.

Financial safety net

Having an emergency fund is similar to having a safety net in place to catch you when those unexpected expenses occur.

With an emergency fund you have funds set a side payoff or pay for unexpected expense by having available cash designated for unexpected expense.  This allows you to simply pay for the expense without impacting your monthly budget which could create a financial hardship for you and your family.  Having an emergency fund can act as a financial bridge if you’re unable to work unexpectedly for an extended period of time without pay or suddenly lose your job.  Your emergency fund can cover your monthly expenses until you are back at work or have found new employment.

Less worries

Having an emergency fund in place and adequately funded you do not have to stress yourself out worrying where you’re going to find the funds to pay for unexpected expenses or how your going to pay your monthly expenses if you lose your job or unable to work.  You don’t have to worry about adding additional debt to your existing debt.

Now you know why it’s important to have an emergency fund in order to simplify your finances.

You owe it to yourself to take action by funding your emergency fund if you don’t have one in place. You can start by establishing a monthly automatic deduction from your primary account to another account.  If you do have an emergency fund in place it is adequately funded.

What other questions do you have regard emergency funds?


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