Here are my top four reasons why you need to have an emergency fund. Unexpected expenses always crop up, so it’s wise to have an emergency fund to cushion the blow. Also, don’t miss two things you can start doing today to build your emergency fund!
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I’m naturally conservative when it comes to money. I like to have a padded emergency fund just in case something goes wrong.
But after working for nearly a year in the financial services industry, I realize just how many people don’t have an emergency fund. And it’s scary!
So I’ve thought through my most compelling reasons for having an emergency fund and came up with four big ones. These are what motivate me, and I hope they’ll convince you to establish an emergency fund too!
4 Reasons Why You Need an Emergency Fund
1. Everyone needs a backup in case something goes wrong
Let’s face it: life has a habit of throwing curves at almost every turn.
Car repairs, emergency medical bills, and job losses are all very real possibilities for most people. And from what I’ve witnessed on a daily basis at work, these are the kinds of events that have the potential to destroy people financially.
Homeowners, listen up. This goes double for you.
If you own a home, it’s highly likely that you have some sort of home repair bill heading your way. Leaks, termites, a new roof — these can get costly very quickly!
In fact, just last month, our air conditioner completely quit on us. That was a $6500 bill that we were totally not expecting. I get a terrible, sickly feeling when I think about what might have happened if we didn’t have our emergency fund to cover us.
2. Credit cards are a bad way to fund emergencies
One word: interest.
Credit card companies make their money when you carry a balance each month. We do use our credit cards for some of our monthly purchases, but we pay off the balance every single month. Even with our excellent credit, our credit card company would charge us 23.9% interest if we carried a balance. It’s unreal!
To think that people really use credit cards for emergencies makes me so sad. I know that people sometimes have to do whatever they can to get by, but it doesn’t have to be that way!
An emergency fund doesn’t cost you a thing. In fact, it might earn you a little bit of interest just by sitting there. Trust me, emergency funds are a million times better than credit cards for unexpected expenses.
3. You work too hard to be one missed payment away from losing everything
In my line of work, I see all kinds of people. I see hardworking people, and I see lazy people. By far, most of the people I see are the first type, so I’m going to be the optimist here and assume that you fall into that category as well.
If you put in an honest day’s work at your job every single day, then you shouldn’t have to worry about not being able to pay your mortgage. Or your rent, utilities, grocery bill, etc.
Emergency funds are the answer! When things go wrong, you should be in a position to take them in stride. Why? Because you work hard to provide for yourself and/or your family.
4. You deserve to sleep at night
An emergency fund will give you such a peace of mind that money problems won’t keep you awake at night.
It’s a rare occurrence in our household, but I do know what it’s like to stress out about money.
Within a year of purchasing our house, our emergency fund reached its lowest point. It wasn’t completely empty, but I had not seen my account balance that low in probably fifteen years. I was a little nervous!
And you know what? I didn’t sleep well for a few weeks. It was a terrible feeling.
From that moment on, I made a concerted effort to make sure our emergency fund was sufficiently padded because I never want to experience that feeling again. I prefer to sleep well at night, and our emergency fund allows me to do that.
You have every right to sleep well at night too, and I just know an emergency fund would help ease some of your financial worries.
2 Things You Can Do to Build Your Emergency Fund
If I’ve convinced you to start an emergency fund for yourself, you may be wondering how to make it happen. Here are two things you can do today to find some extra money to start building your emergency fund:
1. Make a Budget
First, start by creating a budget. You need to make sure you aren’t spending more than you earn each month, and the only way to do that is to have a plan for how you’ll spend your money before the month even begins. Look for categories that you can spend less money on and put those extra funds toward your emergency fund.
2. Save Money Wherever You Can
Second, save money wherever you can. A great place to start is by cutting out treats. Treats come in many forms such as candy, Starbucks, vending machines, and clothing. These are the things that we don’t really need but think we deserve.
Challenge yourself to only buy things that are absolutely essential to your survival, even if it’s just for two weeks. You’ll be surprised by how much money you have left over at the end of those two weeks to put in your emergency fund!
And if you’re still craving more money-saving ideas, take a look at these two posts where I list the top things we do to keep our spending low. There may be some ideas in there that you can use to save some money to put into your emergency fund:
Wrapping it Up
So there you have it! Those are my top four reasons why you need an emergency fund and what you can do to start building one today. Trust me, you’ll sleep better at night knowing that you have a little cushion set aside for those unexpected expenses.
And if you want to know where we learned about the importance of emergency funds, I highly recommend you read Dave Ramsey’s book The Total Money Makeover. It will change your life!
Other Posts You May Enjoy
- How to Build an Emergency Fund: 3 Solid Strategies to Get You There Quickly
- 7 Free or Cheap Ways to Exercise on a Budget
- How to Know Which Financial Advice to Follow
- Want to Take Charge of Your Finances? Dave Ramsey Can Help
- How to Save Money Without Feeling Deprived
- The Best Financial Advice I Ever Received
- How to Spend Less Money When Your Spending is Out of Control
I’d love to hear your stance on having an emergency fund. Do you have one? Do you want one? Leave a comment to let me know. 🙂
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