Emergencies – from a fractured bone to a job loss – are a fact of life. When you’re faced with life’s unexpected events, you can be ready.
An emergency fund is a stash of money set aside to cover the financial surprises life throws your way.
These unexpected events can be stressful and costly.
Here are some of the top emergencies people face:
Apart from financial stability, there are other pros to having an emergency reserve of cash.
1. It helps keep your stress level down.
It’s no surprise that when life presents an emergency, it threatens your financial well-being and causes stress. If you’re living without a safety net, you’re living on the “financial” edge—hoping to get by without running into a crisis.
Being prepared with an emergency fund gives you confidence that you can tackle any of life’s unexpected events without adding money worries to your list
2. It keeps you from spending on a whim.
You’ve heard the saying “out of sight, out of mind.” That’s the best way to store your emergency money. If the cash is only as far away as your closest debit card, you may be tempted to use it for something frivolous like a designer cocktail dress or plasma TV – not exactly an emergency.
Keeping the money out of your immediate reach means you can’t spend it on a whim, no matter how much you’d like to.
And by putting it in a separate account, you’ll know exactly how much you have—and how much you may still need to save.
3. It keeps you from making bad financial decisions.
There may be other ways you can quickly access cash, like borrowing, but at what cost? Interest, fees, and penalties are just some of the drawbacks.
Now you have known you should establish an emergency fund, what is the right emergency fund amount?Advertisement