If COVID has taught us anything, it is that life can be unpredictable. From small business owners closing up, to people losing their jobs. An emergency fund is an important part of our financial planning process, whether you have already experienced a loss of income or want to be prepared in the event of a job loss or sudden expenses.
My decision to build an emergency fund was spurred by a health crisis. It was terrifying to have to spend a large portion of my funds, which would leave you financially vulnerable. When the doctor assured me that there was nothing to be worried about, I was thrilled. It was a relief, but it was also a prompt to build an emergency fund.
Emergency fund is an important aspect of a well-thought-out financial strategy. You’ll be in a far better position to weather short-term economic instability while staying on track toward your long-term goals if you have enough money set aside for unforeseen cash requirements.
Let’s say you have a health crisis and the doctor says you need emergency surgery. You’ll have to delve into your savings, which you had set aside to buy a new car or a piece of land. This pushes your goals back three steps.
To be clear, an emergency fund isn’t a savings account with cash on hand for when you find a great deal or want to treat yourself to a weekend excursion. It’s money you’ve set away specifically for emergencies.
Creating an emergency fund requires discipline and strategy regardless of your circumstances.
Here are three reasons why having an emergency fund is crucial, whether you can start today, tomorrow, or in the near future:
Job Loss:
Whether you’re fired, you get let go or you quit voluntarily, being jobless can be nerve-wracking. Something about a steady paycheck provides us with stability and comfort of mind. An emergency fund will not be able to replace your income, but it will be able to assist you to bridge the gap.
Emergency funds can serve as a cushion when you unexpectedly lose your job. With emergency funds you can still maintain your standard of living while you look for something new, pay for rent and utilities. Ideally, emergency funds should cover at least six months or three months of your living expenses.
Also, if you have an emergency fund, you can focus on finding the next job that’s right for you. This is because if you’re financially desperate, you may feel pressured to take the first position that you’re offered, even if it’s not the best fit.
Manage Medical Emergencies:
You’re young, you’re healthy—what can go wrong? A lot, actually. From unexpected illnesses or accidents, medical expenses are incurred. And you would be compelled to spend money that would ordinarily cover your living expenses if you do not have an emergency fund. Even if you have medical insurance, you may still be required to pay for all or part of your treatment out of cash. Some treatments may be excluded from coverage, or your non-essential healthcare coverage may be exhausted within your plan year.
If you’re looking for reasons why you need an emergency fund, imagine scrambling to come up with the funds to cover a medical emergency, rather than taking care of yourself.
Reach Your Long term goals Faster:
If you are working toward a goal like owning a home or starting a business, your emergency fund can stop you from dipping into those savings when unexpected expenses come up. This can prevent you from moving backward with these goals and helps you reach your long-term goals faster.
Conclusion:
Having an emergency fund shouldn’t be something up for or open to debate. The minimum amount in your emergency fund should be able to cover your expenses for three months, although some people advocate for at least eight months. Whichever way, it’s important to put it into consideration. You should think of an emergency fund as an insurance policy for unexpected expenses.
Ready to set aside some funds for Emergencies? start saving up.
