Why You Need an Emergency Fund
The purpose of an emergency fund is to provide cushion and protection when life happens. Having one will allow you to focus on the situation rather than stress about money. Giving you time to recover and heal as you get back to normal. An emergency fund is like insurance that protects you from the unexpected. Allowing you to be reimbursed instantly for a claim and providing you with many benefits and the coverages below.
Debt Avoidance Coverage
When unexpected or unplanned expenses hit us, we have to pay for them somehow. Before having an emergency fund, we would have taken on more debt to make the payment. Your emergency fund protects you from adding to your debt by providing the funding to cover these expenses.
Forgotten Expenses Coverage
When you first start budgeting, there will be some irregular expenses that you forget about, like taxes, gifts, or a membership fee. Your emergency fund protects you in the first year of establishing your budget to fund the cost of these forgotten expenses. These expenses must be added to your budget to prevent forgetting again.
Job or Income Loss Coverage
The truth is, no job or income is guaranteed no matter how secure you think it may be. As an employee, you can be laid off. Being self-employed or a contractor, contracts can not be renewed. The COVID-19 pandemic has made a lot of us realize this through complete job loss or furlough. But, it has also made us aware of the impact of not having an emergency fund. Your emergency fund protects you up to the full amount of your funding. This can be three months, one year, or whatever you decide. Make sure you plan enough savings to cover the time it will take you to find another job. The higher the income of the job, the longer it will take to find a replacement.
Last-Minute Travel Coverage
A time will come when we have to travel ASAP. This can be because of a medical emergency, a funeral, or other emergency. If you’ve ever had to make last-minute travel arrangements, you know the costs are higher. In these emergencies, the last thing we want is to worry about is the cost. Your emergency fund will provide you with the peace of mind to book and go.
Savings Theft Coverage
If you are saving for a goal, such as a down payment for a house or a vacation, the last thing you want to do is to steal from it to cover an emergency. Well, when we don’t have an emergency fund we usually end up taking the funds from another savings to cover the expense. This theft can set you back and cause you to miss your savings goal. Your emergency fund protects your savings from theft by providing the funding for emergencies.
Major Repair Coverage
There’s nothing more gut wrenching when your car or house needs a major repair. To clarify, minor repairs and routine maintenance like new tires or HVAC maintenance are not covered. Your emergency will protect you in the event of a major repair or replacement, such as an engine replacement or roof replacement.
Medical Coverage
Despite having medical insurance, there will still be times where costs have to be paid out of pocket. It’s because of deductibles, a procedure not covered, or maxing out coverage, to name a few reasons. This coverage is not a replacement for your medical insurance but a supplement. Your emergency fund helps cover costs and protect your health.
Enrollment
With all this coverage, you will wish you had enrolled in an emergency fund earlier. Whenever you use your emergency fund, be sure to replenish it to keep your coverage active. Start your emergency fund today and stay protected from the unexpected.
TIP:
Target $1,000 for your emergency fund starting out and then work towards the number of months you desire for coverage.