Yes, you need an emergency fund…Here are five reasons why!
Finally, you’re earning an income that covers the bills and more, you’re on track to pay off your debt and indulge every so often …and suddenly, thanks to some unforeseen event, you’re back to overdraft, taking out advances against your credit card, or dipping into your condo down payment fund. Again.
In some personal finance circles, there’s talk of emergency funds becoming obsolete thanks to cheap interest rates and easy(ish) access to credit. But now that I’m well into adulthood, I realize how necessary an emergency fund is. Here are just five of the many reasons why you need one:
- You could lose your job.
Yes, employment insurance exists, but there’s a waiting period before you start receiving the funds. And in this economy, expect processing delays when you first apply, meaning that it can take up to three months before employment insurance benefits actually kick in. How will you cover your expenses in the mean time? And this is assuming that you’re eligible to receive E.I. benefits at all.
- You’re taking a leave of absence.
For family and/or personal reasons you may need to take a significant amount of time off—whether that means resigning from your current position, turning down freelance projects or taking a leave without pay. Do you have funds readily available that will allow you to take the time you need off without disrupting your financial situation?
- You’re self-employed and between projects.
Sometimes business slows down. While you hustle to ensure that it picks up again, you’ll need a cushion to finance your downtime.
- Life happens.
You need an emergency root canal a few weeks before your work benefits kick in, a family of raccoons decide to make a home in your attic, you have to fly across the country (or world) for a family emergency…In the past few years, I can’t think of a time when life didn’t happen and everything went according to plan and budget. An emergency fund will help you deal with life’s surprises without derailing your overall financial goals.
- Peace of mind.
How many times have we clung to a job we hated just because we were financially stuck? Staying at a job that makes you unhappy can have an even more negative impact on your wellbeing than you think. How nice would it be to know that thanks to your emergency fund, you’re better prepared to take on life…and all of its surprises!
Are you currently financially squeezed? Finding it impossible to save three to six months living expenses? Not sure about how to go about building an emergency fund? Next time, I’ll go over some tips and tricks on how to accumulate your own emergency fund, no matter the budget.