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Top 5 Reasons to Have an Emergency Fund

You’ve probably heard of an emergency fund, but do you have one?  Most of the financially savvy people in this world have gotten good at budgeting for the every day predictable expenses.  But what about the leaky roof that finally caves in and needs to be replaced?  Or the old car that completely dies on you?

Find out now: How much do I need to save for retirement?

Emergencies like this can set your finances back years if you’re not prepared.  Having an emergency fund is how you prepare.  Leaky roofs and old cars are things that most people like to hope will never happen to them but when they do you need to be ready.

Here are the top five reasons why you should have an emergency fund.

1.  Avoid Credit Card Debt

The easiest way for most people to access cash in a pinch is via their credit card.  This might be ok for a short period of time (like until you can transfer money from another account) but if you are carrying a balance for a long time, your interest rates can significantly increase whatever the cost originally was.  A decent emergency fund will allow you to steer clear of credit card debt in the event of a financial disaster.

Check out our credit card calculator.

2.  Take Time Off Between Jobs

Top 5 Reasons to Have an Emergency Fund

Whether you’re fired, you get let go or you quit voluntarily, being jobless can be nerve-wracking.  There’s something about that regular paycheck that gives us security and peace of mind.  And even if you’re entitled to unemployment, it won’t come close to replacing your income.  An emergency fund won’t replace your income either, but it can help bridge the gap.

Additionally, it’s always nice to be able to take a short hiatus in-between employment stints.  But if you find yourself living paycheck to paycheck you won’t have that luxury.  Instead, you’ll have to go straight from one job on to the next.  Having money in your reserves will allow you to recharge your batteries and wait for the perfect opportunity instead of taking the first position that becomes available.

3.  Can’t Shake That Cold

Most of us have health insurance but believe it or not there’s a lot that it won’t cover: lost wages, benefits, etc.  The last thing you want to worry about when you’re sick is your finances.  Having an emergency fund will allow you to get the best treatment possible since some hospitals require upfront payment.  Even if your insurance eventually foots the bill, you don’t want to get mired in bureaucracy when you should be focused on getting better.

Related Article: Budgeting for a Rainy Day – How to Grow an Emergency Fund

4.  Reduce Stress

Top 5 Reasons to Have an Emergency Fund

One of the biggest sticking points for most couples is money.  An emergency fund won’t solve everything but it can definitely help by providing just a little bit extra peace of mind.  Having a little bit in your savings will give you the flexibility to spend some more money when you need it and save more when you don’t.

And this doesn’t just go for married couples.  Even if you’re single, an emergency fund should be used as a safety net against unexpected financial catastrophes.

5.  Maintain That House

Owning a home can be a great joy for most Americans.  Things like a mortgage and property tax are fixed (generally) throughout the life of the home but there are lots of other things that can continually cost you money.  It’s important to be prepared for things to break and be able to pay for them as needed.

Photo credit: flickr, ©iStock.com/Squaredpixels, ©iStock.com/laflor

Harry Campbell Harry is an aerospace engineer by day and personal finance blogger by night. He runs his own personal finance blog at Your PF Pro and is a freelance writer. Harry currently resides in Newport Beach, CA and enjoys biking and playing beach volleyball in his spare time.


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