There has been a lot of talk about ‘seizing the day’ and ‘living our best lives’ of late but there’s no doubt that planning for the future is wise. The reality is that nobody knows what is around the corner. When it comes to your finances, it pays to be prepared for every eventuality. In this guide, we’ll discuss the reasons why everyone should consider setting up an emergency fund.
Covering loss of income
One of the most significant advantages of creating an emergency fund is covering loss of income. The pandemic has highlighted the risks attached to being dependent on a single income stream or self-employment earnings. Over the last 12 months, many people have lost their jobs and businesses have struggled or even folded, causing widespread anxiety and financial worries. Even if you think your job is stable and your income secure, there are always risks. If you have an emergency pot you can dip into, you won’t need to worry if you have bills to pay and you lose your job or you experience a reduction in your income. You can use your savings to bridge gaps between jobs and to prevent stress if you lose clients or your business goes through a rough patch.
Healthcare and sickness
Health problems can cause severe financial problems for employees and individuals who are self-employed. If you have health issues that require treatment and prevent you from working, you might be worried about how you’re going to pay for treatment at a time when you’re not working and you may only have a limited number of paid sick days. If there are additional costs to cover after you’ve claimed on your health insurance, or you don’t have insurance, you could use emergency funds to pay for medical treatment, rehabilitation or ongoing healthcare as well as utilizing your savings to cover bills and outgoings. When you’re sick, the last thing you want is to be anxious about money. Stress and anxiety can hinder healing and recovery.
Legal fees
Many of us assume that we won’t need the expertise of a divorce attorney or a criminal defense lawyer but the reality is that anyone could find themselves in a situation where they require legal advice. Most of us are aware that we’ll need to enlist the services of legal professionals to oversee transactions like buying houses but we don’t often think about breaking the law or needing help with family issues. If you find yourself on the wrong side of the law, it’s hugely beneficial to have access to legal assistance and to have experts in your corner. Perhaps you had a car accident that you didn’t mean to cause but you injured another driver or you got caught up in an illegal situation while trying to clear debts, for example. With an emergency fund, you can access the money needed to seek advice and to hire lawyers to represent you and increase the chances of a successful outcome.
Home repairs
Owning a house is an aspiration most of us have from an early age. It can be incredibly exciting and rewarding to become a homeowner but it can also be expensive. If you own your house, you are responsible for any work that needs doing, including general maintenance and repairs. The cost of maintenance and repairs can run into the thousands, particularly if you have an old house or you live in an area where there is a high risk of hurricanes, flash flooding or fires. Extreme weather can wipe out entire communities and neighborhoods and even minor storms can cause extensive damage to houses. If you find yourself with a sudden repair bill, you might wonder how on earth you’re going to cover the cost. The first thing to do when you buy a house is to make sure that you have comprehensive home insurance that also covers your possessions. If you have an insurance policy, this should provide you with a financial payout if your home sustains damage in line with the terms of the plan. Your emergency fund can help you get by if there is a delay with your claim and cover any additional charges that are not included in the policy.
Moving house
We often think about moving house as a positive step, which is taken by couples or families as part of a new adventure. While this is often the case, there are many reasons for moving and sometimes, it can be a result of relationship breakdowns or having to leave your home due to change in circumstances. If you’re renting, for example, the landlord might issue a notice because they want to sell. If you live with a partner, you might need to find somewhere else to live if the relationship ends. Moving house can be expensive because you usually have to pay a significant amount of money up-front. If you’re leasing a property, you may need to pay a deposit plus a month or two months’ rent. An emergency fund could help you cover the cost of moving if you needed to do so unexpectedly.
Pet care
Millions of us have treasured pets who are like members of our families. While there are multiple benefits of owning pets, there is no doubt that having a furry friend can also be expensive. If your dog needed surgery or your cat got run over by a car and they needed immediate treatment, for example, would you be able to afford to pay the veterinarian? It’s always beneficial to invest in pet insurance and to choose comprehensive cover. Nobody wants to find themselves in a situation where they have to choose between paying their rent and keeping their pet alive. If you have an emergency fund, you won’t have to get into debt to help your pet.
Money worries are one of the most common sources of stress among adults in the US. Often, unexpected life events and bumps in the road can affect our finances and exacerbate stress. To provide peace of mind and ensure that you are able to cope during difficult times, it’s incredibly beneficial to have an emergency fund. You can use your savings to cover everything from lost earnings and healthcare costs to legal fees and treatment for a much-loved family pet.
