Bankrate’s January 2020 Financial Security Index survey revealed that 41% of U.S. adults would cover the cost of a $1,000 car repair or emergency room visit using savings. The survey found that an additional 37% of U.S. adults would need to borrow the money in some capacity. This basically means that more than half of the U.S. adult population doesn’t have an emergency fund. If you’re a part of the population who doesn’t have one, I’m sharing 5 reasons why you need an emergency fund…like yesterday.
5 Reasons Why You Need an Emergency Fund
#1 – You’ll be covered when a pandemic hits
If the coronavirus has taught us anything, it’s that we absolutely need to have savings. Millions and millions of people lost their job. Combining that fact with the statistic above, it means that millions of people wouldn’t be able to survive. They wouldn’t be able to keep a roof over their head. I don’t want that for you, for myself or for anyone.
So, you want to know what the solution is? An emergency fund. A savings account that has no need to be touched unless something truly traumatic happens – like job loss, or unexpected medical costs, or a series car malfunction. Do yourself a favor and get those savings in order BEFORE something drastic happens.
#2 – There’s a peace of mind that comes with an emergency fund
You may be one of the lucky individuals who hasn’t been financially impacted by the coronavirus. That doesn’t mean that other types of emergencies can’t pop up for you. A stable situation is all the more reason to have an emergency fund together. Not to mention, the sense of security and peace of mind that comes from knowing you have money in case something happens is priceless.
You can sleep at night. You can make decisions from a place of security, not a place of scarcity. You can take comfort in knowing that you’ve bought yourself some time, should something ever happen. Maybe nothing ever happens! However, we’ll never know either way. That means, it’s better to be safe than sorry.
#3 – You can’t predict when things will come up
The thing I’ve come to realize about life is that nothing goes 100% according to plan. We can’t plan for everything, and we can’t predict everything. This is where having an emergency fund can be a lifesaver. Because we don’t know when bad, expensive or unexpected things are going to happen, if we have a savings built up, those things aren’t so devastating (ideally).
While we can’t predict when things will come up, we can control what we do now in preparation for those things! Having an emergency fund will allow you to “plan for the unplanned”. Life can still keep moving because you can leverage your savings to pick up the slack.
#4 – Desperation makes people do things they normally wouldn’t
No one wants to be a position where they’re forced to do things they wouldn’t normally have to do. You don’t want to get a 3rd job because you can’t cover a new bill. You don’t want to use credit cards because you don’t have money to pay for an expense. You don’t want to take out a payday loan to get you through next payday.
My point is that having an emergency fund can keep you out of that desperate place. Desperation is no fun, and it usually comes with all sorts of other negative feelings. Get your emergency fund in order so you don’t have to get desperate just to make ends meet.
#5 – Life can still move on, even when an emergency comes up
Imagine something popping up that could completely throw your budget out the window. Instead of giving up on your budget, you take from your emergency fund to cover the cost. That means you can still go about your monthly budget. You can bounce back! That is why an emergency fund is so important! It helps you keep things moving business as usual.
Knowing that you can cover [almost] anything that comes your way because you have an emergency fund is a wonderful feeling. It makes having the emergency fund worth it! Even if it’s never used. I’m sure it will be, but it’s meant to be used in cases of emergency!
How to Start Prioritizing Your Emergency Fund
#1 – Review your budget to see what you can afford to save
Now that you know the reasons why you need an emergency fund, let’s talk about how to start getting yours set up! First, you’ll want to review your budget and pinpoint any opportunity you have to save money.
Can you cut back your fun spending? Can you pay the minimum payment on your credit cards until you get your emergency fund in order? Review your budget to see how much you can start putting to the side for your emergency savings.
#2 – Open a new high-yield savings account for your emergency fund
Since your emergency fund should only be used in cases of emergency, you’ll want to keep it somewhere where you aren’t as likely to touch it. I always recommend high-yield savings accounts, like those offered through online banks, because they are not as easy to get to and you get more interest on your money sitting there!
You basically earn more in interest, just for having your money in one of these accounts. If you never have an emergency come up, you’re gaining more and more interest! You also need to think through getting to your funds, because it’s a process. That could help you make sure you’re not spending your emergency fund on things you shouldn’t!
#3 – Don’t stop saving until you reach your goal amount
Once you have your savings amount decided and your account set up, it’s time to start saving! Think about how much you want to have put away for emergencies, and keep saving until you reach that goal. If you come into extra money, put it in your savings. You’ll be able to reevaluate where your money goes after you reach your goal.
Need help saving for emergencies? Schedule a free financial focus call with me and let’s chat about getting you started!
Related: How to Successfully Build an Emergency Fund
An emergency, big or small, can happen at any time. You don’t want to undo years of progress because you weren’t prepared! Everyone, no matter how much money they make, needs an emergency fund. Hopefully, I’ve convinced you of that! Do you have an emergency fund? How much do you have saved for it? Drop a comment below to share.