A key necessity to living a simplified financial life is to be prepared for the unexpected.  You just don’t know when your car may need a major repair, when the next natural disaster will strike, when that unexpected medical expense will occur.  You say, “Wait 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.  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 use a credit card or use funds from some type of personal line of credit such as a home equity line of credit.  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 this 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 flexibility
Having an emergency fund enables you to easily 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
BY having an emergency fund 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. Now you must take action by funding your emergency fund. Start by establishing a monthly automatic deduction from your primary account to another account if you do not already have an emergency fund.  If you do have an emergency fund make sure it is adequately funded.