An emergency fund is a sum of money that you have set aside for any unexpected financial circumstances that may arise. Often, saving money for an emergency isn’t a top priority, especially for those that live from paycheck to paycheck with little left over at the end of the month. However, it is important to save what you can, when you can, as an emergency fund is something that can help prevent you getting into debt should you need a lump sum of money fast. Here are some top reasons when you should think about saving an emergency fund.
Replace or Repair Appliances
Whether you have a large family or you live alone, you no doubt rely on your appliances to get through daily life. Washing machines, refrigerators, and freezers, or your boiler, are appliances that are taken for granted when working well, but when they break down, it can leave us panicking where to find a fix quickly. Getting repairs or replacements can be expensive, but it is also a necessity. Without an emergency fund, you might not be able to replace appliances for some time, or you might have to borrow money to do so.
Building Damage
Your home could become damaged in the event of bad weather, such as high winds, which are often the cause of roof and chimney damage. For smaller repairs, you might not want to claim on your home insurance. Instead, you will need to find the money for the repairs.
Other types of building damage can occur from leaking or burst water pipes, for which you will need to hire water cleanup services. Water damage can be extensive, and need repair work to wooden flooring and skirting boards, plaster and more.
Having an emergency fund which you can access when you need to will help you to get all the necessary repairs done, without having to worry about finding the necessary money to do so.
Large Bill
No matter how well we manage our money, sometimes we open a letter and receive an unexpected bill that we haven’t budgeted for. Or, perhaps we might have been asked to pay for damages after an accident of some kind. If you are living from paycheck to paycheck, finding the cash to pay for it can be a cause of stress and worry. Having an emergency fund there ready to help you can be a huge relief.
Health Expenses
Emergency health or dental expenses can cost a lot of money, as can a long-term illness. Save yourself the worry of not being able to pay for treatment that is not covered by your medical insurance by having an emergency fund in place.
Unemployment
If you find yourself in a period of unemployment or have an unsteady income, it can be a worry. After all, you still have all your regular bills to pay, as well as living expenses. If you are between jobs or have been made redundant, having an emergency fund gives you a buffer that can get you over a difficult time. When saving your emergency fund, work out your cost of living for a three to six month period and make that your target savings amount.
Where to Put Your Savings
When saving an emergency fund, always have your savings account separate from your main bank account because that way, you won’t be able to spend it as easily. It is also wise to set up a standing order for a set amount that you can afford to save so that you don’t have to add savings to your emergency fund manually. It means that you won’t have to remember to do it every month, it is simply added for you. Choose a high-interest account, so you get the benefit of a little extra being added at the end of each month.
Saving for an emergency is key to giving you peace of mind should any unexpected costs arise, and helps you avoid getting into debt which makes your financial situation worse. Even if you have little left over each month, get into the habit of just saving what you can. You might also look at your monthly budget to see where you can reduce costs.
It is very satisfying to watch your savings grow, and know that you are making an effort to secure your financial situation should emergency costs hit unexpectedly. When you do put a little aside each month, you will soon have some money there to cover you should you need it.
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