5 Reasons Why You Need An Emergency Fund

In this day and age, it is impossible to overestimate the role of financial stability in the context of the contemporary global environment. An emergency fund is part of this security where one can have some money saved in case of any incident that requires some cash. Below are the most important reasons why an emergency fund is essential, and how it will protect your financial health.

1. Protection Against Job Loss

The first and probably the most obvious reason to set aside an emergency fund is to shield yourself from unemployment. Layoffs are also unpredictable and with the current shrinking job market and increasing insecurity, the possibility of again finding yourself unemployed is rather high. An emergency fund serves as a buffer that gives one the ability to meet basic needs, shelter, food, and other utilities as one looks for another job.

2. Unexpected Medical Expenses

The idea of having an emergency fund means you will be able to facilitate crucial health expenses without having to jeopardize your other crucial needs. This is more so in cases where one is suffering from a chronic disease or has young children as medical expenses may be more frequent.

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3. Major Home Repairs

The purchase of a home also comes with the obligations of maintenance and fixing problems that arise from time to time. Any type of home repair – be it a damaged water heater, a roof leakage, or a faulty heating and cooling system, is a large and often an emergency expense. It is the ability to hose down such problems as these through an emergency fund that ensures the safety and comfort in the home we live in. 

4. Car Repairs and Replacement

To most people, a car is a necessity in their day-to-day lives since they rely on it to get to work, for emerging purposes, and to ferry their loved ones. Cars are bound to develop mechanical problems, and more often than not, the repair costs are exorbitant. An emergency fund assists in catering for such expenses thus guaranteeing that your transportation costs do not turn into a strain.

5. Avoiding High-Interest Debt

The inability to raise the amount at hand makes many individuals turn to credit cards and personal loans most of which attract very high interest rates. Resorting to short/ high-interest finance elevates the chances of debt traps that are hard to escape (Alex Kleyner has more info on this). Unplanned expenses makes you likely to borrow to cater for an emergency hence an emergency fund will enable you to avoid this by having ready cash to use in emergencies. This can help you to still save a lot of money in terms of charges in interest and shield your credit rating.

In A Nutshell

An emergency fund is much more than a mere financial instrument; it signifies the creation of a solid basis for a person’s life. Thus, we learn how to be ready for unpredictable situations that can even negatively affect us and our families and, in addition, to save money and gain confidence in our future. Don’t wait to predict and manage the eventualities, but focus on creating and strengthening a plan for emergency savings.