Sentry Page Protection
6 Common Reasons You Need Emergency Fund
Lots of people save for a rainy day. But do they really understand what that rainy day might mean?
Rainy days are more often than not real emergencies. They require substantial amounts of money immediately.
Saving money isn’t always exciting, but an emergency fund is imperative to your financial health. As I learned 22 years ago, it only takes one unexpected expense to topple your finances. The lack of an emergency fund can result in taking on additional debt or not being able to pay for a critical expense, like your child’s braces.
When disaster struck, we didn't have an emergency fund. Yes, we had some savings - we had been saving to renovate our house and had saved the money needed to pay for the renovations - thank goodness! Otherwise we would have been left with a mortgage, two little boys, a baby on the way and no money. Our lives would have been very much different to what we live today without those savings.
You may never find yourself in the position I was in, but there are several reasons you might require an emergency fund:
1. Medical bills. Unexpected medical bills. We have an amazing health care system here, I know, I've made good use of it over the last 2-1/2 years, but It’s no secret that medical care is outrageously expensive. A simple MRI might only take 30 minutes but it can easily cost $900 or more and depending on where it is done, there may or may not be any Medicare rebate. Pathology, x-rays, ultrasound all cost hundreds of dollars that you pay. Even with health insurance there are out of pocket expenses for hospital stays and outpatient treatment. Add pharmacy bills to that and you can be out of pocket to the tune of thousands of dollars.
2. Car repairs. Once the warranty has expired, your car has the potential to become a financial disaster. You should have car maintenance built into your spending plan, and this should cover regular services, tyres, brake replacement etc. Sometimes though the repairs required are not ones that can be scheduled or planned. Once you’re no longer making a car payment, Keep making the payment to yourself. You're already surviving without this money, so saving it will give you a decent head start on your next new car and give you a good back-up for future repairs.
At some point, all cars become more expensive to fix than they’re worth. Ensure that you have the funds in place to minimize the amount of debt necessary to obtain a new car.
3. Unemployment. Currently, 10-12% of us will be without a job at some point in the next 12 months. Scary thought isn't it? Over the course of a lifetime, the number is much larger. Could you survive for at least 6 months until you find another job? What would happen to your family, home, car, and insurance?
4. Major home repairs. Replacing a roof, a/c unit, heater, hot water service, repaving the driveway or replacing major appliances can cost more than the average homeowner has sitting around in his bank account. Some repairs can wait, but others can't. An emergency fund is necessary for many of these expenses. Your house and contents insurance doesn’t cover everything.
5. Funeral expenses. Funerals are expensive; even the most basic of funerals can cost around $6,000. And even if you don’t have to pay for a funeral, you may have to travel half-way across the country to attend one. Deaths are often unexpected, and this isn’t an item that people build into their spending plans. If there’s one truth in life, it’s that everyone dies eventually. There’s no escape.
6. Dental expenses. Even with health insurance, a broken tooth, braces for the kids, too many teeth, not enough teeth, or mishap with a cricket ball (ask me how I know!) can cost more than your bank account will support. While your health insurance might be great, most dental plans leave a lot to be desired, especially with regards to cosmetic issues.
The best time to start an emergency fund was 10 years ago. The second best time is right now.
Begin setting aside a percentage of your income (I suggest 10 per cent to start - remember the 10-10-80 rule) and seek to increase the amount over time. Aim for at least six months of living expenses. That will be enough to handle most financial emergencies. Anything you’re able to save beyond that can be invested with a more long-term focus.
If you're not convinced of the importance of having an emergency fund, consider these advantages:
1. You’ll be much more relaxed. Knowing that you have money available to meet your unexpected financial needs is reassuring. You’ll worry much less.
2. It prevents poor financial decisions. When you need cash, but don’t have any, it’s easy to make financial mistakes that can be costly. Payday loans and the use of high-interest credit cards are two examples.
An emergency fund is a financial necessity. It provides a cushion for life’s unexpected twists and turns. One financial mishap can easily undo years of your hard work.
Begin your emergency fund today and secure your financial future.
It’s never too late to get started.
Rainy days are more often than not real emergencies. They require substantial amounts of money immediately.
Saving money isn’t always exciting, but an emergency fund is imperative to your financial health. As I learned 22 years ago, it only takes one unexpected expense to topple your finances. The lack of an emergency fund can result in taking on additional debt or not being able to pay for a critical expense, like your child’s braces.
When disaster struck, we didn't have an emergency fund. Yes, we had some savings - we had been saving to renovate our house and had saved the money needed to pay for the renovations - thank goodness! Otherwise we would have been left with a mortgage, two little boys, a baby on the way and no money. Our lives would have been very much different to what we live today without those savings.
You may never find yourself in the position I was in, but there are several reasons you might require an emergency fund:
1. Medical bills. Unexpected medical bills. We have an amazing health care system here, I know, I've made good use of it over the last 2-1/2 years, but It’s no secret that medical care is outrageously expensive. A simple MRI might only take 30 minutes but it can easily cost $900 or more and depending on where it is done, there may or may not be any Medicare rebate. Pathology, x-rays, ultrasound all cost hundreds of dollars that you pay. Even with health insurance there are out of pocket expenses for hospital stays and outpatient treatment. Add pharmacy bills to that and you can be out of pocket to the tune of thousands of dollars.
2. Car repairs. Once the warranty has expired, your car has the potential to become a financial disaster. You should have car maintenance built into your spending plan, and this should cover regular services, tyres, brake replacement etc. Sometimes though the repairs required are not ones that can be scheduled or planned. Once you’re no longer making a car payment, Keep making the payment to yourself. You're already surviving without this money, so saving it will give you a decent head start on your next new car and give you a good back-up for future repairs.
At some point, all cars become more expensive to fix than they’re worth. Ensure that you have the funds in place to minimize the amount of debt necessary to obtain a new car.
3. Unemployment. Currently, 10-12% of us will be without a job at some point in the next 12 months. Scary thought isn't it? Over the course of a lifetime, the number is much larger. Could you survive for at least 6 months until you find another job? What would happen to your family, home, car, and insurance?
4. Major home repairs. Replacing a roof, a/c unit, heater, hot water service, repaving the driveway or replacing major appliances can cost more than the average homeowner has sitting around in his bank account. Some repairs can wait, but others can't. An emergency fund is necessary for many of these expenses. Your house and contents insurance doesn’t cover everything.
5. Funeral expenses. Funerals are expensive; even the most basic of funerals can cost around $6,000. And even if you don’t have to pay for a funeral, you may have to travel half-way across the country to attend one. Deaths are often unexpected, and this isn’t an item that people build into their spending plans. If there’s one truth in life, it’s that everyone dies eventually. There’s no escape.
6. Dental expenses. Even with health insurance, a broken tooth, braces for the kids, too many teeth, not enough teeth, or mishap with a cricket ball (ask me how I know!) can cost more than your bank account will support. While your health insurance might be great, most dental plans leave a lot to be desired, especially with regards to cosmetic issues.
The best time to start an emergency fund was 10 years ago. The second best time is right now.
Begin setting aside a percentage of your income (I suggest 10 per cent to start - remember the 10-10-80 rule) and seek to increase the amount over time. Aim for at least six months of living expenses. That will be enough to handle most financial emergencies. Anything you’re able to save beyond that can be invested with a more long-term focus.
If you're not convinced of the importance of having an emergency fund, consider these advantages:
1. You’ll be much more relaxed. Knowing that you have money available to meet your unexpected financial needs is reassuring. You’ll worry much less.
2. It prevents poor financial decisions. When you need cash, but don’t have any, it’s easy to make financial mistakes that can be costly. Payday loans and the use of high-interest credit cards are two examples.
An emergency fund is a financial necessity. It provides a cushion for life’s unexpected twists and turns. One financial mishap can easily undo years of your hard work.
Begin your emergency fund today and secure your financial future.
It’s never too late to get started.