The Importance of an Emergency Fund

During the Great Recession, many Americans discovered what could happen seemingly out of the blue. Job losses left people fending for themselves, scraping and scrounging to pay mortgages, buy groceries, and keep the lights on. Many were unable to maintain their accustomed lifestyles and as a result, experienced the worse. Some, however, weathered the storm and only suffered minor inconveniences. Why? They had an emergency fund for just such an occasion.

In this day and age, every individual and family should have an emergency fund. The only thing predictable about life is that it is unpredictable. With no warning, circumstances arise that must be handled immediately. Without preparation, a family’s entire household can be thrown in disarray. An emergency fund provides a cushion to handle these unexpected situations.

Some circumstances, like sudden job loss, requires having an emergency fund. Bills still need to be paid and your family still needs to eat. While unemployment benefits can help with these expenses, living on this income will greatly alter your family’s lifestyle. You will need to budget appropriately and adding an emergency fund to unemployment income will help your family live more comfortably.

Even though a catastrophic event has yet to occur, having an emergency fund can help you live without tension caused by financial worry. You can live at ease knowing that you have prepared for unexpected occurrences. Better choices will be made due to your ability to reason clearly without the additional burdens brought about from stressing over money. Families can focus their thoughts on more joyful things knowing that they have an emergency fund set aside just in case.

An emergency fund also protects other investments you may have. In times of crisis, some people choose to sell investments to pay unexpected expenses or to maintain comfortable living after loss of income. With an emergency fund, you can spare your investments from an untimely demise. They will continue to grow while you use emergency funds to handle life’s little (or big) surprises.

If suddenly your car needs repair, you need surgery, or you lose your job, you can see first hand the importance of having an emergency fund. How much should you have in an emergency fund? Some financial experts recommend setting aside six to eight months of income. Doing so would provide for anything ranging from sudden medical expense to sudden income loss. So, start saving today so you can be prepared for what tomorrow brings.