It won’t happen to me… That’s what you might tell yourself anyway. And because of that mentality, you might spend the majority of your earnings each month, and make little effort to put money aside into an emergency fund. It might seem worthless, but there are actually 3 very important reasons to start an emergency fund.
3 Reasons to Start an Emergency Fund
Life, as you will know (despite our casting aspersions on your good character above), is full of surprises. We must always expect the unexpected, because life could throw us a curveball at any moment.
So here’s the thing.
If you haven’t started to build an emergency fund yet, then consider doing so at your earliest opportunity. (These tips will help you.) With money in place to protect you from financial harm should a catastrophe take place, you will be able to cushion the blow.
These are just a few of the reasons to start an emergency fund…
1) You Could Lose Your Job
Job security isn’t always guaranteed these days. With smaller businesses at risk of closure because of the larger competition, it could be that your job isn’t as safe as you imagine it to be. And, because many workplaces today are automating some of those jobs that were traditionally taken by human staff, you could one day be replaced by a robot.
These are uncertain times, so while you should definitely come up with a plan B if you suspect your job is unsafe, you should also put money aside to keep you going should the unthinkable happen and you do lose your job. This way, you won’t have to solely rely on unemployment benefits, and you won’t have to risk debt when trying to cover all of your household bills.
2) You Could Fall Foul of the Law
Now, we’re sure you’re a law-abiding citizen. We are sure you wouldn’t intentionally commit any major felonies that could see you locked up behind bars. And you might be pretty darn sure that you wouldn’t commit a crime, either.
- You might one day be tempted to break the speed limit.
- You might one day find yourself accused of a crime you didn’t commit.
- And you might, despite your good intentions, find yourself in a position in the future that triggers a law-breaking act.
It could happen, and if it does, you could face financial penalties, lose your job, and face hardship when covering court expenses. So, as unlikely as breaking the law might seem to you, prepare for the worst and put some money aside, just in case!
3) You Could Face Repair Bills
Your house could be damaged by wind, rain, or fire. You might have a car accident or discover a fault that needs to be rectified quickly. And something could break down within your home…
Now, some of this can be alleviated if you are insured for such eventualities, but even if you are, you will still need money in the short-term to deal with the repair bills facing you.
So, put money aside, just in case something does go wrong with your home and car. And if you don’t have the proper insurance in place at the moment, get on top of that situation too, and protect yourself from major financial harm.
We have only covered a few eventualities, but there could, of course, be many others. So, expect the unexpected, from whatever source, and start to build an emergency fund to protect yourself from financial troubles in both the short and the long-term.
Do you have a long-term emergency fund? How much do you have socked away just in case?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.