At some point in your life, one or more of the following is going to happen to you. There will likely be moments where several of these happen at once.
You lose your job and can’t quickly find another one at the same level of pay.
The property tax bill you forgot about is due.
You unexpectedly get pregnant (or your significant other does).
You find yourself with a debilitating illness.
You try to start your car in the morning, but nothing happens.
Your hours are cut at work, leaving you in a position where you can’t quite get another part-time job.
Your child needs an urgent medical treatment.
You get hit by a car and are bedridden for several months.
A friend or relative in crisis moves in with you for a while.
You (or your spouse) slip into depression or another difficult mental state.
Your identity is stolen, locking you out of your credit cards and/or bank account for a while until the issue gets straightened out.
You’re evicted from your apartment because of some unexpected issue.
You discover your partner is cheating on you and you feel uncomfortable living at home.
Your dream job comes along, but it requires a steep drop in pay.
You’re driving along when suddenly plumes of smoke appear from under your hood and every light on your dashboard flashes on.
You or your spouse has a drug or alcohol or gambling problem that begins to spin out of control
A relative or friend of yours passes away suddenly in another part of the country (or the world).
You find an amazing bargain on something you’ve looked for all of your life, but it’s still costly.
You start needing a medication that’s not covered by your health insurance.
An unexpected professional change forces you to relocate quickly.
All of these things – and many more – can cause an otherwise stable financial situation to quickly collapse into chaos, forcing you to tap your credit (hard). If you’re lucky, your emergency doesn’t also coincide with a moment where you have an identity theft issue or credit problems that prevent you from using those kinds of resources.
It’s stressful. It’s damaging to your finances. It leaves you feeling like you’re juggling chainsaws.
Much of this can be minimized by simply maintaining a cash emergency fund. Just open up a savings account and make a commitment to put some money in there each week. Better yet, ask your bank to do it automatically for you. Then forget about that account… until you face an emergency. That’s when your emergency fund will be there for you.
If you have an emergency fund, you just tap that cash to solve whatever problem is being thrown at you. Rather than being a crisis, it all just melts away in the face of your advanced planning.
If you don’t have an emergency fund, start one. You’ll be glad you did.