Whether you constantly read about financial solutions or you have no idea how to balance your checkbook, it’s still important for everyone to fully understand why it’s important to have an emergency fund. As a start, it’s a good idea to have about $1000 set aside for emergencies, but you can start your emergency fund with any amount that makes sense for you. Aside from being able to spend money on an unexpected expense, emergency funds provide a variety of other benefits to those who have it. Take a look at why you need an emergency fund and to start reaping the many benefits that come with it.
Finances create the most stress. In fact, according to a survey by Forbes, more than 72% of Americans are stressed about money. However, when you have an emergency fund, it allows you to relax a little bit. That’s because you don’t have to freak out about how to pay for something unexpected that comes up. Being prepared with an emergency fund allows you to handle anything from airbag repair on your vehicle to buying a new water heater for your home. This creates less stress for you and allows you to focus your efforts on other things that matter to you.
You absolutely need to have a budget in order to get your finances in order, and having an emergency fund allows you to budget better. By having this money ready to access when you need it, you’ll avoid playing the game of moving money around to pay for unexpected expenses. This way, you can ensure the money you bring in now is going towards the expenses you have now and that you’re creating a nice buffer to have when you need it for something that arises. In addition, putting your emergency fund in a separate account means you won’t think about it and you won’t be tempted to spend it, which means this money will stay for what you designated it for.
When you don’t have an emergency fund and an unexpected expense comes up, your options come down to putting that expense on a debit card or asking someone to borrow money. Doing this creates an added level of stress that you don’t want to experience. First, it just adds another payment you need to make every month, which can make it harder for you to pay your bills. In addition, you’ll have an interest rate on this borrowed money, which means you’ll be putting yourself deeper into debt that will be harder to get out of. However, when you have an emergency fund, you can avoid taking out a loan to cover that expense, and that means you can avoid debts and keep your head about water.
Puts You in Control
An emergency fund allows you to be in control of your finances and your future, and this is a huge accomplishment for many people. When you have that extra money lying around to use at your disposal, you’ll be able to be the one making the right decisions and not letting someone else take over. Plus, being in control of your finances allows you to decide what exactly your money gets spent on, and this also allows you to decide just how much money is put into your emergency fund. All of this ensures you experience the peace of mind of being in complete control of your financial situation.
Offers a Buffer
Aside from the other benefits, an emergency fund gives you a nice buffer for those unexpected expenses. For instance, if you lose your job, an emergency fund allows you to continue paying your bills without stressing about landing another job. While you will work hard to continue earning a paycheck, you’ll be less stressed and less likely to just take the job that’s offered to you in order to make some money. Plus, it will keep you from making some rash decisions in order to make money, such as selling family heirlooms or doing something that may not be completely legal.
An emergency fund is a great way to have less stress and experience the financial freedom you need to tackle whatever comes your way. Even if you only have a small amount of money set aside for your emergency fund, it’s important for you to have one and reap all these benefits.