Why You should Have an Emergency Fund

It is not wise to expect the unexpected. You should be ready for it. Nothing is certain in life. You may have a stable job, self cert mortgage and a fat bank account today but tomorrow everything you own may go down the drain in an instant. You could be healthy today but tomorrow you could fall seriously ill. You might need extra money to help a family member get out of trouble.

To prepare for many unexpected things in life, you have to put up an emergency fund. This amount would serve as your effective contingency plan that would be in place in case bad goes to worse. There could be a very important expense that you have to shoulder tomorrow. It is best if you could have some emergency fund to cover whatever it is you would need.

Not all people have an emergency fund. If you do not have one now, it would surely be the best time to put up one immediately. Here are several reasons why you should keep an emergency savings fund today.

Preventing accumulation of debt

Debt could be considered an emergency. You may need extra money in the coming days to repay some loans, which would incur penalties and other additional charges if not settled on time. If you have an emergency fund, you could be sure you could always avoid delayed payments or worse, default. Use your emergency fund as a financial safety net that you could always use to avoid going into deeper financial trouble in the future.

Spending for urgent necessities

You may encounter a car accident, take care of a sick child, or lose your job tomorrow. If you do not have income protection insurance, you may rely on your savings to keep you afloat. Your emergency fund could come to your rescue.

Assets and investments are not liquid

You may have saved so much on your assets and investments. It could be wise. But be reminded that those are not readily converted to cash. If you would need a significant amount of cash tomorrow, you may not be able to produce the money you need overnight just by selling some properties. If you have an emergency fund, you could be sure there would always be money in your pocket to cover all your urgent and important expenses.

Saving for your emergency fund could encourage more good habits

How could you save up for your emergency fund? Being financially responsible could be a good start. You may need to trim down your debt level or curb your current spending on luxurious items. Doing so could surely help you free up some amount so you could deposit it into your savings account. Stick to your budget and have the discipline to avoid unnecessary spending.

Save an amount each month that would not hurt your overall finances. By doing so, you could surely beef up your emergency savings fund. Be sure the amount could be withdrawn and used whenever you need it. You may also keep some cash always ready on hand for immediate or instant access, in case it is most needed.

Andrew is a regular contributor to personal finance blogs. When he is not writing, he works at Australian Lending Centre

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