If the year 2020 has taught us anything it’s that you can never be sure of what’s around the corner. While none of us can predict the future, we can prepare for it in the form of an emergency fund. As the name suggests, an emergency fund is only to be used in extreme circumstances. It’s not to dip into when you fancy a holiday or a shopping spree, rather when the only other alternative would be a grim financial outcome. It’s also not a replacement for poor spending habits either.
So, are you ready to learn why stashing the cash is so important? In no particular order, here are 7 credible reasons why you need an emergency fund.
You Lose Your Job
Regardless of your profession and how long you’ve worked for a company, that’s no guarantee things will stay that way. Economic uncertainty looms over us all, and for many losing their job comes as a real shock especially when they have no financial backup. After all, your mortgage and other bills will still need paying regardless of your employment status. Most financial experts advise having at least 3-6 months of your monthly expenditure tucked away just in case.
What would you do if you had an accident and couldn’t work again for months? We’ve all seen the adverts for personal injury solicitors but the reality is often not as golden as they make out. Firstly, your accident is not always someone else’s fault. Secondly, even if it is, it can take a while to get to court and there’s no guarantee the judge will rule in your favour. Having a lump sum put away for all eventualities including serious injury could prove to be invaluable if you’re unlucky enough for it to happen to you.
The average boiler costs between £1,695 to £3,299 to install. Without a working boiler, you and your family could be left without any heating or hot water. If you run a business, then a lack of hot water could also force it close. It’s often the case that boilers break out of the blue, and it can be a huge financial strain to get it replaced. So if your boiler is on its way out, now is the time to start putting some money aside to make sure cold showers in winter don’t become a thing.
A Devastating Event
When you consider what an emergency actually is such as a fire, flood, explosion or death – the last thing you’d want on top of that is to realise you are suddenly massively out of pocket too. While it’s always a good idea to get home insurance, it can’t always protect you against every scenario. For example, insurers will usually look the other way for anything deemed as an ‘act of God’. The cost of repairs, a hotel and anything else you’d require during this time could hugely add up if you’re not prepared.
If you rely on your car to get to work or ferry the kids to school, then how would you cope if it suddenly broke down or was written off? This one often catches people off-guard, and for some, it could mean they have to switch jobs because public transport doesn’t serve the route they need or takes too long. Sadly, payday loan companies often use the excuse of a car breakdown to attract customers, giving them astronomical interest rates in return. Avoid getting into debt by preparing ahead with your emergency fund.
Start Your Dream Business
Have you always wanted to bite the bullet and start your own business? What can hold people back is the reality that it can often take time to generate a profit. You may have good and bad months, meaning the money won’t be as steady as it was in your old job. However, by creating an emergency fund you don’t have to give up on your ambition. By reducing at least some of the financial pressure, you’ll also be able to concentrate more of your efforts on your business too.
The reality of life is you never know what tomorrow holds. From an unplanned pregnancy to a sinkhole that makes it too dangerous to enter your property. You just never know! Even a larger than normal bill could spell financial disaster. Rather than live in fear, you can live in peace if you know you’re covered for all eventualities. By preparing for such an event now, you’ll be seriously thankful in the future should any of the above crop up.