We can admit it, adult life is frustrating and definitely not easy on some days. You always have to be able to face new hurdles with each coming day. One such limitation can be struggling to pay your bills or encountering unexpected expenses.
The solution? Having an emergency fund.
An emergency fund is essential if you are looking to improve your financial situation. I will admit it is not easy to save money, and at times, you have to spend specific amounts of money, which is why budgeting is essential.
On the contrary, if you still face difficulties in saving for emergency funds, you could try out certain money-pinching apps that hold a ton of money for you without even having to do much.
Why Have an Emergency Fund?
Experts urge people to have a liquid fund consisting of money to take care of three to six months of living expenses. However, at times getting an emergency fund drops down the pecking order of our priority list. This is why people need to understand why they need an emergency fund and why it is crucial.
First, an emergency fund acts as a backup for you and your family in liquid (cash) form, which could be needed to take care of unexpected expenses. This may include medical expenses, cover your family if you lost your job, family crisis, and debt.
There are many other reasons you should get an emergency fund. Here are a few you should look at.
1. Start Budgeting
Budgeting is a tedious task that can often seem daunting, but it is essential. If you have just started budgeting, you could leave out important things like emergency funds. The fact is you can not afford to do so because it is a lifesaver.
Let us take COVID-19, for example. It has disrupted our lives as people lost their jobs and increased medical expenses. People with emergency funds were well better off than the rest, which is why emergency funds are essential.
You may be thinking about how I can reduce these unexpected expenses and stick to saving money. The answer is budgeting. It would help if you started budgeting, and, in a few months, you will have little to no unexpected expenses (not considering the fact there will be any godlike event).
Budgeting is one of the best ways to reduce your expenses, and it will increase your savings, which would help you in the long run in the form of emergency funds.
2. Peace Of Mind
Whoever you may ask who has enough savings to overcome godlike or unexpected events would tell you that they are in a way at peace as they have what it takes to overcome such hurdles.
Anyone with a nice big stash of cash lying around would be at peace. Yes, I mean in terms of emergency funds. You no longer have to worry about any unexpected expenses that may occur in the near future.
If, per se, you lose your job you will have peace of mind regarding the fact that you have to take care of your family. Taking care of our family and how to do so is almost always on our minds.
Life is full of twists and turns, and we do not know what to expect but having cash stashed away somewhere is in its way comforting.
Having peace of mind has its benefits, mostly health-wise. You start stressing less, which could prevent you from having any occurring health problems. Being stress-free takes a toll on your shoulders, helping you make unbiased and intelligent financial decisions for your family.
Emotion is an incredibly astute human quality and is often difficult to control, so a stress-free mind is better suited for financial means.
3. Paying Off Debt
Emergency funds have more than one usage depending on anyone’s priorities or financial requirements. You could use your emergency funds to pay off debt. However, you need to consider a few things:
- How much savings do you have in your emergency fund?
- Could you increase your emergency fund while paying off your debt?
- What is your emergency fund meant for?
- How long will it take for you to rebuild your emergency fund?
- Are you willing to let go of your goals for the emergency fund in the meantime?
You could pay off unexpected things you often exclude, including medical costs, car repairs, or home repairs. Using your emergency fund is less stressful and, most importantly, gets the job done.
Having an emergency fund will help you pay off debt and help you avoid debt in the future, as having a cushion for unexpected expenses helps to remain debt-free.
In summary, it is crucial that you prefer paying off all your debts as this will decrease the financial burden on you and give you peace of mind.
4. Financial Discipline
The heading may not sound so exciting but give me a minute to explain my point. It is hard to be disciplined, especially financially, but you are often unable to reach a particular goal due to your lack of financial discipline.
Mainly because you may not be familiar with being financially disciplined, budgeting is one of the primary financial discipline sources. You live your life in a certain way without spending recklessly. Having an emergency fund is an excellent financial discipline practice as it is considered another form of saving.
Being financially discipline can bring much certainty in your life as you stop having unnecessary expenses. Emergency funds are a great way to start.
5. Asset Protection
If you lose your job (hopefully not!), emergency funds act as a lifesaver, especially if you have a family to protect. Without an emergency fund, you might have to use your saved money for something else or go into debt.
Emergency funds act as the first line of defense before you could go into debt. This way, you will be able to support your family without having to put a hand in your retirement money or any other kind of savings.
6. You Want To Achieve A Goal
This may sound vague, but we all secretly desire something. It could be a new car, a new house, or vacation, for that matter. Most people face a problem because they have to put a hand in their savings, which they have saved up for these kinds of goals due to emergency expenses.
Having an emergency fund will prevent all such incidents from occurring, and you will have a safety net to fall into if something unexpected happens. Protecting your savings is essential, especially if it is looked at in the long term.
7. One Source Of Income
Many families/people have only one breadwinner in their family, and it is often expected that they have one source of income. I can not stress this enough! In these cases, having an emergency fund is life-changing.
Considering factors such as loss of a job or sick days, having an emergency fund can help you go into debt. According to experts’ people who try emergency funds are less likely to go into debt. I mean, why not try it. Depending on how big your family is, start an emergency fund so that you do not have to go through the trouble of credit cards or getting a loan, for that matter.
Conclusion
You can ask any financial expert if they all will tell you the same thing: Keep an emergency fund. If you have a family, emergency funds play a huge role, and there are always a ridiculous amount of unexpected expenses you have to pay.
Even if you do not have some money for safekeeping, it is always soothing and helps you live your life comfortably without going into debt.
