Emergencies are unexpected and can occur at times when we are the least ready, catching us off guard and leaving us unprepared both personally and financially. An emergency fund is a critical component of a basic financial plan and provides peace of mind knowing that you are covered during difficult times. A well-stocked fund can cover medical bills, unexpected car repairs, emergency travel expenses, and more. Here are some examples of when having an emergency fund can be most beneficial.
Job Loss
A robust emergency fund enables you to cover your basic necessities in the event of an unexpected dip in income. To determine how much you should aim to save, calculate your necessary expenses for a month and multiply it by the number of months you want your fund to cover. Three months is a recommended amount, though having six months or more can bring you more financial peace of mind. People with an unstable income or those who are the primary earners in their household should try to save up enough to cover a year’s worth of expenses.
Unforeseen Medical Expenses
Having an emergency fund can be a lifesaver in the case of unexpected medical expenses. Even with health insurance, some treatments, such as X-rays or ambulance rides, may not be covered. It’s important to have enough cash saved up to cover your insurance deductible as well as any out-of-pocket expenses, such as those associated with dental visits or emergency dental work.
Unexpected Home Repairs
If you’re a homeowner, having an emergency fund can be a great help for you to deal with unexpected home repairs. Even if you have insurance, you may have to pay a high deductible to cover the costs. These might include costly repairs such as a broken appliance, damaged roof, faulty heating system, or burst pipe. Without an emergency fund, you could be facing a stressful situation if you don’t have the ready cash to cover costs. An emergency fund can be specifically set aside to cover these types of expenses, especially since not all home issues are covered by insurance.
Car Maintenance and Repairs
Having money available for car maintenance and repairs is a must for any driver. Plan ahead for these regular costs, as well as for any unexpected breakdowns or accidents. To determine the amount of money you should save for these expenses, consider the age of your vehicle and any insurance coverage you have. A lower deductible or comprehensive coverage may be necessary to make sure you are not held liable for any large costs in the case of an accident.
Emergency Pet Care
If your pet requires vet visits, treatments, or surgeries due to a medical emergency, such costs can be high, and you may not be able to afford it without an emergency fund. Stress can be compounded without an emergency fund when your pet is sick or injured, and you’ll then be worried about how you’re going to pay for it. Pet insurance may help; however, an emergency fund is a great way to make sure that you are prepared in the event of a pet emergency.
Family Emergencies
When someone close to you has a serious illness or passes away, you often don’t typically don’t have the time or flexibility to find a discounted plane ticket or the cheapest hotel stay. These expenses can add up quickly, in addition to other costs associated with the crisis, such as health care or end-of-life expenses. Funerals can be particularly expensive, often exceeding $10,000. Even if your loved one had life insurance, it could take months before you receive the benefits to pay for the funeral. And you don’t want the costs may linger on your credit card, adding interest over time. Having an emergency fund can help alleviate the financial strain in these instances, making it easier to focus on what truly matters – being with your family. Additionally, if your employer doesn’t offer bereavement pay, you could be faced with a dip in your income at the same time these expenses become due. To help avoid the extra stress of unexpected financial obligations, having an emergency fund saved up can reduce the financial burden of these difficult situations.