Life is notorious for throwing curve balls when you least expect it, and it can derail even the most carefully planned personal finance goals. If you’ve ever faced an unexpected expense, you know the size of your emergency fund plays a major role in how well you weather the storm.
But some people aren’t getting the message, according to a report by the Federal Reserve. It found only 33% of Americans say their finances are in better shape now than they were a year ago. That means a whopping 67% of us might be forced to pull out a credit card when something comes up.
If you haven’t put much thought into how an emergency fund can help you gain (and keep!) your financial footing, don’t put it off any longer.
With all the ways life can go wrong, here are 15 ways an emergency fund will save you from disaster.
You lose your job and can’t find a new one right away
Nothing throws your finances into a tailspin faster than losing your job. While having an emergency fund to fall back on can help keep the lights on, you need a budget, too. If you don’t already have one set up, do yourself a favor – skip the fancy software and make a budget in excel instead.
Your hours are cut at work and you weren’t expecting it
You might think getting your hours cut is only a problem for part-time workers. But if you depend on overtime to make ends meet and your boss takes it off the table, your paycheck will suffer. While you work on finding a new source of income and cutting back your expenses, your emergency fund can pick up the slack.
Your car breaks down
Keeping your car in tip-top shape is a high priority, especially if you use it to get back and forth to work. When the bill comes, you’ll be thankful you had the money set aside in your emergency fund to cover the cost of repairs.
You or your partner have an unanticipated pregnancy
Having a baby brings a lot of joy into your life, but it can bring a lot of stress, too. If you haven’t checked out the cost of diapers or formula lately, you’re in for a shock. Plus, you’ll likely need the extra cash from your emergency savings to cover the loss of income while on maternity leave.
You take a trip to the emergency room
Accidents happen, and the cost of healthcare isn’t getting any cheaper. Even simple treatment for a broken a leg can cost you thousands. If this happens to you or one of your kids, having an emergency fund will come in handy.
You have a toothache that morphs into a major dental expense
If you woke up with a toothache that won’t quit, a last-minute dental appointment might be in order. If you’re one of the lucky ones that have some dental coverage, you’re in for a surprise since most plans only cover a small percentage of the cost of major procedures. But with an emergency fund in place, you’ll have no trouble paying the bill.
Something happens to your furry friend and they need emergency pet care
Your pet is part of the family, and your heart can break when they get sick or injured. If you have an emergency fund in place, your pet will get the care they need without digging you deeper into debt.
You’re self-employed and your best client disappears
Being your own boss is a dream lifestyle. However, the reality of not having a set income every month can complicate your personal finances, and you need a budget to make sure your bills get paid. Plus, what happens if your most prominent client disappears or decides they don’t need your work anymore? If you have an emergency fund, the money will be there to support you and your business while you find a replacement client.
Your bank locks you out of your accounts because your identity is stolen
When identity fraud strikes, your bank accounts and credit cards could be put on hold while everything is sorted out. Having extra cash set aside in an emergency fund can bridge the gap to cover expenses while the bank investigates the situation.
You wake up with no heat in the house or have another unforeseen home repair
Being a homeowner means unexpected furnace repairs, plumbing nightmares, or paying for an exterminator if termites suddenly invade your home. But you don’t have to live without heat since this is where your emergency fund can come to the rescue.
Your tax bill is more than you thought
Whether your income tax bill is higher than expected or you forgot about property taxes that are due this month, having money in your emergency savings account can save your budget and help to cover those costs.
If someone you love passes away
When a family member or a friend passes away suddenly, emotions run high. Instead of worrying about how you’ll pay for travel expenses to help with arrangements or to support your loved ones, you can dip into your emergency fund for airfare or a bus ticket. It can even help cover the cost of missing work for a few days.
If you end up having to pay for funeral costs
With a basic service coming in at over $8,000 according to the National Funeral Directors Association, the cost of dying isn’t cheap. Even if the person who passed has a life insurance policy to help cover the funeral, processing the claim could take weeks. You’ll probably pay out of pocket to get things going, and your emergency fund can give you peace of mind for these expenses.
When short-term disability just doesn’t cut it
Most employers offer short-term disability insurance at no cost to their employees. Still, if you’re sick and unable to work, the policy will only pay a fraction of what your actual wage is. Plus, if your illness lasts long-term, you could lose your job. Having a well-stocked emergency fund can help you make it through.
You have a big savings goal like buying a home or starting a business
When setting aside money for a down payment on a house or saving to start your own business, an accident or unforeseen expense can thwart your best-laid plans. Rather than putting your dreams on hold, your emergency fund can be a financial cushion when a significant expense comes up that you weren’t expecting.
How Much Do You Have Saved?
Having an emergency fund is paramount to finding success with your personal finances. If it’s still on your to-do list, adding a category for “emergency savings” to your budget is a good first step. Then, set up a direct deposit to your emergency fund account to automate the process and make saving easier than ever.
And to build your emergency savings even faster, your best bet is to use a high yield savings account. Not only does a high yield savings account pay more interest, but it can keep your hands out of the cookie jar since your money isn’t sitting in your regular checking account.
Have you had to use your emergency savings account for something? Tell us about it in the comments below!
Amy Beardsley is a freelance writer and staff writer for Club Thrifty, a website dedicated to helping people dream big, spend less, and travel more.