5 Important Reasons Why You Need An Emergency Fund
You have an emergency fund, right?
I know it’s easier to gloss over the fact that bad things sometimes happen to good people, but life is unpredictable. You just never know when the engine might fall out of your car or you’ll need to go home to care for an ailing parent. It’s always better to spend a few uncomfortable minutes thinking about possible problems now than to be caught off guard by real ones later.
If you don’t have an emergency fund — or aren’t exactly sure what you need — here’s what you need to know.
What Is An Emergency Fund?
An emergency fund is money you keep in a liquid savings account so you can access it quickly when you need it. It should be a safe, FDIC-insured account that you can make penalty-free withdrawals from. You’ll need between three and six months of expenses in there to tide you over if you ever lose income. Don’t despair if you don’t have that much — every little bit helps, and you’ll get there eventually if you set aside a little bit every month.
Why You Need Emergency Funds
These things might never happen, but they’re great examples of the types of life events your emergency fund is designed to protect you against:
1. Your Car Breaks Down.
You can’t live without your car if you plan to keep working, and you need to keep working to pay for a new car. Having a few thousand dollars in your emergency fund will keep you on the road when your car quits.
2. You Get Really Sick.
If you run out of sick time at work, you’ll need a back-up plan to cover your lost income as you recover.
3. You Get Laid Off.
Downsizing is real, and it could be coming for you — no matter how good you are at your job. Your emergency fund gives you some breathing room while you look for new work.
4. Your Identity Is Stolen.
If someone gets your checking account number and cleans you out, it could take some time to get everything sorted. In the meantime, your emergency fund will be a big help if you’re locked out of your credit cards and other accounts.
5. You Need to Relocate.
Whether for business or for pleasure, moving is expensive. If you need to get to your new opportunity quickly, your emergency fund can get you there without sending you into debt.
Two Big Ways to Save Money in Your Emergency Fund
Now that you have a clear image of all the disasters an emergency fund can protect you from, it’s time to figure out how you’ll build up your savings. There are two major ways to save:
Boost Your Income
You can fast-track your savings by taking on a side gig and banking all the extra cash. If a part-time job is too much, try earning money at home by doing online surveys or working for an internet task site like Swagbucks. You can also raise some cash by selling stuff you don’t need anymore.
Cut Your Expenses
The other way to increase your savings is to trim some excess out of your spending. Eat out less, turn down your thermostat, and cut your shoe budget in half — just make sure you immediately transfer the money you don’t spend into your emergency fund so you don’t spend it on something else.
With a one-two punch of cutting some discretionary expenses and picking up some odd jobs to boost your income, you can get you emergency fund up to snuff sooner rather than later. It’s also a good idea to automate your savings — even just $25 to $50 extra dollars a month that’s automatically deposited into your savings will really start to add up. Once you’ve got your emergency fund nice and fat, you’ll be able to rest easier knowing you can weather just about any financial storm that life might throw at you.