Having an emergency fund has many benefits. It is not the same as having a saving account. As the name suggests, the fund is for various emergency situations that life may throw at you. The fund will keep you covered financially and help you get through the tough time.
Even a $1000 emergency saving fund can help you with various financial emergencies. The best things about saving for this type of fund is you can save as much as you want. There are various ways you can add to your fund and make it bigger over the time. If you don’t get to use it before retirement, this fund can add extra weight to your retirement savings.
Here are some of the financial situations where an emergency fund can come handy:
- Losing your job
This is the biggest and most important reasons why people have emergency saving accounts. Losing a job can have a very adverse effect on your life. There are so many things that depend on your monthly paycheque – rent, food, car, electricity bills and so many other things. When you lose your job the backup fund will help you get through the tough time. The fund will take care of your basic needs for at least six months which is enough time for finding another job and getting your footing back in life.
- Unexpected Health Emergency
Whether you had an accident, or a major surgery is needed or you are on a long medical treatment, an emergency fund will help in this kind of situations. Health care expenses are one of the important emergency situations that can put a serious stress on your finances. It is important to have a backup plan for your health emergencies.
Even if you have health care policy, you will still need to pay the deductable and excess amount that your policy doesn’t cover. You don’t want to get stuck at this stage. Your Emergency fund will help you cover those healthcare expenses.
- Major Home Repairs
Home repair work is very important. Whether your house got damaged due to natural disasters, or accident like fire or you have something that needs repair work immediately, your insurance will not be enough to cover the entire cost. The insurance doesn’t provide full coverage either. You still may have to pay the deductibles and sometimes the repair work may not qualify for the insurance coverage. This is where your emergency fund will come to your rescue. You can pay the amount needed immediately and keep your home in great condition.
- Unexpected Tax Bill
Just because the last time you got tax refund it doesn’t mean it will happen all the time. With so much going on in life keeping track of expenses may not be easy especially when you are paying high interest debts. Paying tax is important and you don’t want to be on the list defaulters. Having an emergency fund will come to your aid in situations like this. This is one of those emergency situations that you have no control over and may need some extra money to cover the expense.
Likewise, there are plenty of bills that can surprise you at any point – electricity bill, phone bills, internet bills and others. This backup fund will help you pay off the bill and stay on the safe side.
- Unexpected Travelling Expenses
You never know when you may have to travel unexpectedly. Unexpected travelling may include death in the family, an emergency situation, surprise wedding, or any other important thing that may need compulsory travelling. You don’t want to put unnecessary burden on your credit card or add up to your debts that you already have. An emergency fund will provide you with the money you need to travel anywhere you have to. This will not put any strain your other saving accounts.
- Other unexpected Financial situations
There are other smaller financial expenses that your emergency fund can cover like car repair, emergency dental surgery, buying an expensive gift, minor accidents, and many other. There are no fixed number of situations where you may need to spend money on. For those little hiccups in your life, this emergency fund will help you get through.
How to save for an emergency fund
Saving for the emergency saving fund doesn’t have to be so serous like your retirement savings. You can add to your fund with every little saving you can:
- Save every month. Start small and gradually build up your fund
- Save those loose change and cash you didn’t spend that day
- Opt for DIYs gifts rather than buy it and save that money in your fund.
- Sell your old things that you don’t use online and earn that extra cash
- Cut back on unnecessary expenses like the number of coffee you buy in a day. You can make them at home as well
Having an emergency fund can provide you financial back up for various unexpected situations. With the fund, you don’t have to depend on other people. The best thing is that you can save as little or much as you can.
Start building your emergency fund.