Sunday, July 29, 2007

10 Reasons to Have an Emergency Fund

You need to have an emergency fund. How many times have you heard that? Of course we all know that an emergency fund is important, however the impetus to save may be further reinforced by considering the following reasons:
1) You never know when you will be riffed, fired, laid off or outsourced. Many an employee has gone to work one morning only to find a pink slip on their desk, or worse, the doors to the business chained closed never to reopen. Having a nice chunk of change to see you through at least the first couple of months after such an event is extremely comforting.
2) You never know when someone is going to die. Funerals, in fact the entire death experience, can be costly for next of kin. If your spouse, parent or God Forbid, child, were to die unexpectedly tomorrow, would you be able to afford it?
3) You never know when your washing machine/car/computer is going to go “toes up” and leave you with an immediate need to shop for a replacement. Some things, such as a vacuum cleaner, you can live without for a couple of weeks but other items that your job (computer or car) or sanity (washing machine if you have a house full of kids) rely on, require a replacement ASAP. In order to not get stuck with high interest rates or huge credit card bills, it’s best to have an emergency fund you can dip into if needed.
4) You never know when you are going to receive a surprise bill that needs to be paid immediately. A couple of years ago, my accountant was having a personal crisis at the exact same time she was preparing my taxes. A year later I received a notice from the IRS informing me that I owed an additional $5000 (plus interest, of course) because the accountant had forgot to include income from a couple of investments that I had had. An “oops” on her part led to an “Oh my God” on my part. At least having an emergency fund made this less of a traumatic event.
5) You never know when you will come across a great deal. A super-duper sale that will more than fill up your pantry for the season with canned goods, a friend selling his truck at way below market value because he needs some quick cash, a last minute trip to visit family because airline ticket prices suddenly took a nose dive (no pun intended)…all of these can benefit you IF you have the cash on hand to take advantage of these great deals when they come along.
6) You never know when your kid will need braces, your wife will need surgery or your mother will need to re-roof her house. Some expenses you can see on the horizon but the actual process of saving for these items kind of gets left by the wayside until the event is upon you. With an emergency fund, you’re covered.
7) You never know when an extended illness, slow down at work or other event will cause you to be unable to earn money for a period of time. With a nice cushion of, say, six month’s worth of expenses in your savings account, you will be able to survive quite nicely until you either recover, wait for production needs to increase or find a new job.
8) You never know when a friend will ask you for help. Granted there are very few people who I would loan money to at all but there are a few who have proven to be extremely trustworthy and always pay their debts. It’s good to know that if a friend does need help, I have the ability to provide said help. As a side benefit, I know that I can call on these people for absolutely any favor, and receive it due to this relationship that has been developed.
9) You never know when you will need to disappear. For whatever reason—an abusive spouse, a psycho ex, an imploding personal life—you may want to just disappear. If you have no savings, your only option will be to disappear among the homeless in the next city down the road. With a sizable emergency fund, you can be chilling on a beach in Rio until things blow over.
10) You never know when TS will hit TF. There are lots of disaster scenarios as well as real-life past events to show just how important it is to have money saved up to help during times of disaster. If you had to flee your city and start all over in a new area (a la New Orleans) would you be able to? If your entire country were to fall into civil war and you needed to either fight or flee, would you be able to have the financial backing to support your decision?

There are a multitude of reasons to have an emergency fund, mostly none as dramatic as the ones listed above. However, having the financial wherewithal to do as you please, when you please, if you need to, is a priceless gift you can give to yourself and your family.

No comments:

Post a Comment