Now that you know what an emergency fund is, let’s see a few reasons why you should have one, even though you may be thinking that you’re too young or too healthy to need one now.
You may be fortunate to have an apparently secure job or you may be working in an extremely sought after field that would allow you to land a new job as soon as you quit your current one. You may be thinking that your credit card is a good enough emergency fund, taking into consideration that you can easily get a credit card with 0% introductory APR.
This pattern of thinking is flawed. Everybody will have to put up with financial emergencies at least one in their lifetime. Here are a few good reasons why you should set up an emergency fund and start building it sooner rather than later. If you are faced with a financial emergency before you have had time to build up your emergency fund, same day loans can get you out of a financial fix.
Your Income May Disappear
Most people think that they can only lose their income in case of getting fired. Nevertheless, this isn’t the only reason why you could be left without your salary. What if you find out that you need to move across the country on a very short notice to take care of your mother who fell and broke her hip?
What if another company acquires the one you’re currently working for and they decide to pay off everyone in your department for redundancy reasons?
What if another crisis strikes the country and the economy collapses? What if your line of work becomes obsolete? All these situations are real and may unexpectedly occur, leaving you without an income to rely on.
You May Suffer A Medical Emergency
The role of emergency funds is to cover you in case of various types of situations. Losing your job is only one of them. A medical emergency such as a severe appendicitis may require you to pay several thousands as deductible in order to get your surgery.
Children Or Pet Emergencies
What if a car hits your beloved dog and you need to pay £3,000 for vet services to save your four-legged friend?
What if you discover that your child has educational needs to help keep up with the other kids at school?
All these things are as real as can be. If you don’t have the cash to address them, they can easily destroy your financial balance.
What Qualifies As An Emergency?
Now that you start to understand the need for an emergency fund as a precious financial tool, let’s see what is and what isn’t a financial emergency.
Financial emergencies are large expenses that occur suddenly and require you to spend money right away. In order to qualify as an emergency, the situation must threaten your integrity, your future financial well-being or your assets.
Here are a few of the real financial emergencies that call for using your emergency fund.
- Losing your job
- Having to pay for medical services to maintain your health
- Having to fix a sudden car breakdown or accident
- Having to address the malfunctioning of a major system in your home such as the HVAC system, the electrical system or the roof.
- Having to buy last minute travel to attend the funeral of a relative
- Having to take time off work to care for a family member in need
What isn’t an emergency?
The main scope of an emergency fund is to save you from emergency situations. However, some people have very funny thoughts in regard to what an emergency is or isn’t.
Here are a few examples that don’t qualify as emergencies.
- Plastic surgery or other non-vital medical expenses
- A cruise or any other type of vacation
- The purchase of a last minute plane ticket to attend a destination wedding
- The replacement of an old carpet with expensive flooring
- The purchase of a better TV
