5 Reasons Why You Need an Emergency Fund

While most of us agree that an emergency fund is important, not all of us think we will ever need it. Here are five reasons why you need an emergency.

1. You could lose a job or an income source.

Statistically speaking, this is one of the most likely reasons you would need an emergency fund. You may have done everything ‘right’ when it comes to your finances. But, loss of an income source could quickly have you dipping into your emergency fund.

The loss of a job is an unanticipated event that can happen to anybody at any time. Having an emergency fund in place can help you keep current on your bills while you look for a new job.

2. A natural disaster could cause you to need to start over unexpectedly.

Tornados, hurricanes, fires. We hear about natural disasters all the time. It’s common to think that these will never happen to you but the reality is that it is a possibility.

At the beginning of this year, there was a huge wildfire in a suburban town a couple of towns away from me. It was extremely devastating to the communities. People lost family and pets, people lost homes, people lost jobs, and more. And on top of all of that, their insurance policies likely wouldn’t cover all of the expenses, leaving the individuals to cover the difference.

Having liquid cash in an emergency was a must as families had to quickly buy clothes, toothbrushes, food, and all of the basic necessities.

3. A medical condition could cause additional bills and loss of income.

All types of medical conditions can cause you to be unable to work and lose income. Most recently, the pandemic caused many people to become ill to the point of not being able to go to work. Many people had to take extended leaves of absence from work without full pay or without any pay.

Every day, people are diagnosed with longer term medical diagnosis’ that require them to miss work for extended periods of time. It is important to have an emergency fund during these times because money is the last thing you need to be worrying about when your health is at risk.

4. You could get hit with an unexpected large expense.

Unexpected large expenses can happen at any time and can happen back to back to back to back. And yes, when it rains, it pours. You may be doing fine monthly, saving money as you can, but all it takes is a series of unexpected expenses to crumble your financial state.

This year is one of those years for me. It started with the cat getting sick $800. Then a cell phone wouldn’t turn back on $900. The cat ruined the carpet $3000. At this point, we accepted that this may just be the year of maintenance. We started jokingly betting which things would be next to break. Then the paper towel holder broke $10. Next was the keypad on the garage door $200. Then the fridge wasn’t getting cold and started making a loud noise. Luckily, completely defrosting the fridge seemed to do the trick and we avoided another $2000 bill.

These types of things can happen to anyone at anytime. The stakes get even larger if you are a homeowner. The furnace, the water heater, the AC, stove, dishwasher, fridge, plumbing, electrical. These are all things that at some point will break and cost money.

Even if you have a good amount of cash flow each month and a generous amount pouring into savings, you need an emergency fund. Money that’s quick and easy to get to when you need to spend it. Then of course you can always build the savings back up.

5. You need to help out a loved one.

This one is more situational and may not apply to everyone. Of course, as the saying goes, make sure you are wearing an oxygen mask before helping someone else put one on. Trying to financially help someone while you aren’t financially secure will only cause both people to lose oxygen.

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