Emergencies Do Happen
When things are going well financially and monthly bills are being paid, emergency savings can seem unimportant. But in addition to your regularly occurring expenses, like mortgage payments and utility bills, individuals often might deal with major unexpected costs such as car repair or medical bills.
Emergencies, by their nature, are unpredictable. When they happen, they can derail your financial stability. A sudden illness or accident, unexpected job loss, or even a surprise home or car repair can devastate your family’s day-to-day cash flow if you aren’t prepared. While emergencies can’t always be avoided, having an emergency fund can take some of the financial sting out of dealing with these unexpected events.
An emergency fund are savings used to cover or offset the expense of an unforeseen situation. It shouldn’t be considered a nest egg or calculated as part of a long-term savings plan for college tuition, a new car, or a vacation. Instead, this fund serves as a safety net, only to be tapped when financial crises occur.
Reasons why emergency savings are important:
- Being prepared – Issues like car or home appliance repair are common occurrences. However, since they do not happen regularly, people often overlook these costs as they create a budget. By anticipating these costs, you can be prepared for these potentially expensive items.
- Avoiding debt – Emergency savings give you the option of dealing with the unexpected without having to take on debt. Without the cushion of emergency savings, you may be unable to pay regular bills if you face an emergency, and are more likely to take on debt.
- Having peace of mind – Having emergency savings will give you peace of mind. Even if you can’t save much, a little money set aside may make a big difference when you need it and reduce stress. Emergency savings give you the option of dealing with the unexpected without having to take on debt. Without the cushion of emergency savings, you may be unable to pay regular bills if you face an emergency, and are more likely to take on debt.
Emergency savings can help you handle unexpected events. With money set aside for emergencies like unexpected car repairs or sudden job loss, you can better take care of yourself and your family financially.
But saving anything, even small amounts, can prove helpful. Aim to set aside 3-6 months of expenses in your emergency savings fund, but with a start smaller amount if necessary. It may take months or years to build a sufficient emergency savings fund, so don’t worry if progress seems slow. Just keep at it! Since, emergencies do happen when least expected and often at the most inopportune time.
Tap your emergency savings only for expenses directly related to an unexpected emergency.
It is important to tap your emergency savings only for expenses directly related to an unexpected emergency. And when you do have to take money from this fund, it’s important to immediately start rebuilding it.
If you start saving now, the money you save today can go a long way towards meeting your needs when the next emergency occurs.
Source: Building Emergency Savings, UMBC