Financial experts don’t always agree on everything — but you’d have a tough time finding one who doesn’t preach about how important it is to build up a healthy emergency fund before a money-related catastrophe arises. The reason? As much as we’d like to think we have great control over our lives, unexpected surprises both positive and negative are always a possibility.
As it stands, only 40 percent of Americans could pay an unexpected $1,000 expense with their savings. And yet the same Bankrate survey also found 30 percent of respondents said they or an immediate family member had experienced at least one major unexpected expense last year.
Life happens — and comes with a price tag. The only thing you can do to keep surprises from seriously threatening your financial health is to prepare ahead of time.
Here are five reasons you may need to reach into your emergency fund. Use them as motivation to start socking away money each month for when a “rainy day” finally arrives.
Unexpected Job Loss
Living paycheck to paycheck means any change in income can seriously rock the boat. Even if it seems like a remote possibility, you may be one of the many Americans who experience a layoff during your lifetime.
Without at least three months’ worth of living expenses saved up, unexpected job loss can actually kick-start a new cycle of debt or exacerbate existing debts — especially if you’re forced to pay for living expenses on credit until you find a new position. In fact, many Freedom Debt Relief reviews written by people who have enrolled in debt settlement cite job loss as a reason for their debt getting out of control.
Most of us have needed to seek some kind of urgent medical care or know someone who has — whether it’s a late-night trip to the emergency room or an urgent appointment with a dentist to fix a broken tooth.
Did you know two-thirds of Americans who file for bankruptcy cite medical issues as a contributor to their financial woes? Whether you have insurance or not, you may at some point find yourself on the hook for a hefty medical bill.
Having a healthy emergency fund will allow you to handle medical bills in stride rather than having to put them on credit.
Sudden Vehicle Repairs
You hop into your car for your typical commute to work. You’ve got your cup of coffee in the center console and everything you need to have a productive day. Except when you turn your key, nothing happens. It could be a dead battery — which you can solve with a jump from a friend or on-demand service. Or you could find yourself shelling out thousands of dollars for towing, diagnostics, replacing equipment under the hood and labor costs.
Emergency Vet Visit
Fido is a dearly beloved member of the family — of course you take him to the vet at the first sign of trouble. But emergency procedures on pets can become quite costly, and you want to avoid having to swipe your credit card to foot the entire bill if you can help it.
Sudden Home Repairs
Why do water heaters always seem to choose the dead of winter to malfunction? Homeowners know the struggle well. With so many systems to upkeep, it’s not altogether surprising you’ll face the occasional “uh oh!” moment. Your emergency fund can help you make repairs quickly and, most importantly, without having to take on serious debt if your homeowners insurance coverage doesn’t apply.
As you can see, there are many situations in which an emergency fund can seriously impact your financial health for better or worse. Start stashing away money each month into a special savings account. Even if you have to start small, your efforts will add up over time and help you stay protected against jarring expenses.