Emergencies can happen at any time and will leave you financially and mentally disturbed. While you cannot do anything to prevent them, it is advised to make the necessary arrangements to fight them. One of the most efficient ways to do this is to build an emergency fund.
An emergency fund is a specific amount of contingency fund that is set aside to deal with any emergencies or financial setbacks. If you are still wondering why you should start building an emergency fund, we have curated a list of the most compelling reasons that will give you an idea of why you should do this.
- Unforeseen Medical Expenses
Unforeseen medical expenses can happen at any time and leave you with hefty bills to deal with. While it is true that insurance can help you during this time, there will be many other out-of-pocket expenses that will leave you financially disturbed.
These expenses include deductibles, medications and therapies not covered under insurance, and transportation expenses. In these times, having an emergency fund ensures that you can meet these hefty expenses without having the need to get high-interest loans.
Moreover, your insurance company sometimes states to reimburse you after the emergency has been settled. An emergency fund will then help you meet all the expenses until the reimbursements are received.
- Unexpected Job Loss
Since COVID, the job market has been dynamic, with minimum to no job security. In this uncertain job market, you should be prepared for unexpected job loss. Having an emergency fund will provide you with financial safety during this period of unemployment.
For the duration your emergency fund lasts, you can search for other jobs and build other income sources. This prevents you from the immediate financial pressure you will have to handle.
In case your emergency fund is enough to last for a considerable amount of time, you can even pursue further skill-building programs or education to upskill your talent. This way, you will be able to land higher-paying jobs that will cover your past losses.
- Home or Car Repairs
Natural disasters are unavoidable and can leave your property damaged to the point that you will need to make necessary repairs as soon as possible. Whether it is a leaky roof, a damaged car, or broken home siding, you will need to make immediate repairs to restore your property.
While home and insurance can cover for these expenses, the insurance company might not provide you with all the money right away. In this case, you will need to turn to your emergency fund to ensure that you can address all these issues right away.
Using your emergency fund for such expenses will ensure that you don’t have to take a loan, which will come with higher interest rates and lead to long-term financial strains.
In order to build an emergency fund, you will need to look for high-yield savings accounts that provide you with the best interest rates. This way, you will be able to capitalize on your savings while keeping your money stored in a secure location. To know more about high-yield savings accounts, you can follow this link here: https://joywallet.com/article/best-high-yield-savings-accounts
- Sudden Pet Expenses
Pets are your family members, and people do care for them like one. But, at times, unexpected veterinary bills can pop out of nowhere and leave you financially disturbed. It can be anything from an unexpected injury or a seasonal illness.
In such scenarios, you cannot just take a loan and leave yourself in debt for the rest of your life. This is where you will need an emergency fund to meet your needs for unexpected expenses. By using this fund, you can provide the required care to your furry friend without compromising your financial stability.
This way, you will do what’s best for your pet’s health without being restricted by financial concerns due to a shortage of emergency funds.
- Opportunity for Investment
Whether you are an investor or not, there will be some unique investment opportunities knocking on your door unexpectedly. At times, these opportunities can be worth investing in, and you will want to grab on them as soon as you can.
This can only be possible with the availability of a carefully saved emergency fund. Having these funds in your bank account will help you take these opportunities for the betterment of your financial condition. This way, you can take the required risks and make the investments that you think can yield higher returns.
Without an emergency fund, you won’t be able to make these decisions, and your financial growth will be restricted.
- Legal Emergencies
Unexpected legal emergencies can arrive at any time. This can be anything related to legal fees, tax-related issues, or the arrest of a loved one for which you will need to bail them out. All of these situations will need a hefty amount of money.
While you can always take a loan or use your credit cards for such situations, doing this will only increase your financial strains. The best way to be prepared for such situations and get rid of them is to have an emergency fund by your side.
It will provide you with the necessary resources to address these intense situations and seek the right professional advice to help yourself or your loved ones.
- Psychological and Emotional Well-being
This is something that will be indirectly affected by the absence of an emergency fund on your side. Financial stress due to all the situations mentioned above can leave you distressed and affect your psychological and emotional well-being.
When you know that you have a safety net to fall back on, it provides you with a sense of security. Moreover, it helps reduce anxiety about any unexpected challenges you have to face in the absence of an emergency fund.
Having an established emergency fund, you can approach the challenges with a confident mindset, knowing that you are protected in any difficult situation that may come your way.