In the present time, there are many people who are struggling to make ends meet when it comes to their financial status. This is because some people do not earn enough or only earn sufficient money to pay their utility bills and to buy food every day. This means that most of them do not have any savings or an emergency fund that they can use in case an unforeseen event happens.
But other people can still solve financial emergency issues by taking out personal loans, just like what asteria.com.ph offers. These can be short term loans that can be paid within weeks or months, depending on their needs. These loans can be used for medical emergencies, repairs, education, and more.
However, even though there are helpful offerings like these that people can rely on in times of emergencies, it is still great if you have your own emergency fund. It is essential to set aside emergency savings that can help you in case there’s an urgent repair that needs to be done in your home, or if something serious happens, like being unemployed or when a calamity strikes. To further understand, we are giving you the reasons why having an emergency fund is important.
What is an Emergency Fund?
Before we go to the importance of having an emergency fund, what is it exactly? To put it simply, an emergency fund is a pool of liquid money that is set aside for unforeseen expenses. Having it can be the difference between a small problem in your financial life and a complete disaster in your entire life. When you have a robust emergency fund, it will give you peace of mind and as well as some freedom.
Well, no one would want to live a salary away from not being able to pay the rent or a car breakdown away from not being able to go to work. Aside from that, an emergency fund can also be useful if your job becomes unbearable and you have to leave before searching for another, or if you are thinking of starting your own business. It can give you the freedom to do all of those things.
Reasons Why an Emergency Fund is Important
Here are the different reasons why it is essential to have an emergency fund:
- To pay off debt: An emergency fund can help you to stop adding to your debt with every financial issue that you meet in the road. It’s because it can help you in covering the things that are not included in your regular budget, such as medical costs and car repairs. When you have an emergency fund to use in handling these stressful events, you can stay focused on getting out of debt. It is also much easier to pay extra money on your debt if you know that you have a budget for unexpected expenses.
- In case of a job loss: One reason you need an emergency fund is to protect your career. It’s because when a person loses his job unexpectedly, he needs to figure out what to do first. If he has an emergency fund, then he’ll have cash available that he can use to pay his rent, utilities, and other expenses. However, without that fund, it’s challenging for him to be able to make ends meet. Also, having an emergency fund will give you the chance to make a thoughtful choice about what your next career move will be. You will be able to focus on finding the next job that is perfect for you. Unlike when you are financially desperate, you will just take the first position that you will be offered.
- To take care of home repairs: If you are enjoying a fine weekend morning at home and then you notice your toilet begins overflowing, then it’s not only your weekend plans that will be ruined, but it can also break your budget. It’s because plumbing emergencies can be expensive. And this is another reason why an emergency fund is essential. It will give you the ability to pay for unforeseen but necessary home repairs without the need to charge large amounts to your credit card.
- When you have just started budgeting: When you start to budget your money, you may be unintentionally leaving out some of the expenses that you need to include. If you do, then your emergency fund can cover some of these expenses for a year. After that, you can add those expenses into your budget as they come up. These can include annual expenses, such as taxes. When you have an emergency fund, it can help you in adjusting to your budget.
- If you only have one income: If you have only one source of income, then it is important to have an emergency fund. It’s because it can help you get through unexpected illness and job loss that can keep the primary breadwinner from working. This means that if your family depends on only one income, or if you are single, then you need to have at least a year’s worth of expenses in your emergency fund. Later on, you can build up a larger emergency fund when you get out of debt.
- If you are self-employed: Having an emergency fund is also essential for those who are self-employed and who own businesses. It will help you have extra savings for months when business is slow. It is also great for contractual workers because when you know that your contract may end soon, building up more money in your emergency fund is important.
- In case of emergency travels: For example, if you live far away from your family and there’s an emergency, the cost can go up if you need to travel at the last minute. But if you have an emergency fund, this can cover the cost of buying last-minute tickets going home.
- For people who have medical issues: If a person has a serious medical condition, this could cause them to max out their deductible each year. It may also require him to have routine tests that can add up quickly, and as well as the need to use all the sick leaves, ending up taking days off without pay. But if a person with medical issues has a well-funded emergency fund, this could help him deal with medical costs, making it easier for him to get through challenging times. Yes, you may have health insurance, but some insurance companies do not pay for everything that you need.
- It is great if you are saving for a goal: If you have goals in life, such as starting a business, then having an emergency fund can also help you in achieving that goal. You may progress to your goal a bit slowly as you build your emergency fund, but you’ll be able to leave the money that you are saving for you, which is a great way to protect your savings. Aside from that, having an emergency fund can also help you in reaching your long-term goals. It can be your own personal insurance policy against unexpected expenses.
These are some of the reasons why having an emergency fund is important. While you can’t ever be fully prepared for emergencies, but planning now is one of the best ways that you can ensure that you can handle unforeseen challenges. We hope the information we shared made you understand more about the importance of having an emergency fund.