20 Reasons Why You Need an Emergency Fund

Trent Hamm
check engine light

The dreaded ‘check engine’ light is one reason you need an emergency fund. Photo: Jim Larrison

If you don’t think you need an emergency fund, think again. No matter how financially prepared you are, life has a way of throwing curve balls that you never expect. Those “unexpected expenses” are the reason many financial professionals suggest keeping three to six months of expenses tucked away in a savings account or investment that is fairly easy to access.

Even if you can’t imagine a scenario where you would need rescuing, remember: anything can happen. Here, for example, are 20 situations where you might need an emergency fund. There may even be moments where several of these happen to you at once.

1. You lose your job and can’t quickly find another one at the same level of pay. With three to six months of living expenses tucked away, you could live off of your savings while you searched for the perfect position. Without an emergency fund, on the other hand, you could be forced to take the first job that comes along – whether you want to or not.

2. The property tax bill you forgot about is due. You should never mess with the tax man. With an adequate emergency fund, however, you could go ahead and pay it and vow to plan better next time.

3. You (or your partner) unexpectedly get pregnant. Hey, it happens. But with an emergency fund, you’ll be in a much better position to prepare for your new baby and any lean financial times ahead if, for example, your job doesn’t offer paid parental leave.

4. You find yourself with a debilitating illness. If you’re too sick to work, you could lose your job. And even if you qualify for short-term disability, you could wind up living on less than your full salary. An emergency fund could help you make it through.

5. You try to start your car in the morning, but nothing happens. Nothing is worse than a “surprise” car repair bill. But with an adequate emergency fund, you wouldn’t have to sweat it, and you could even afford a temporary rental car.

6. Your hours are cut at work, leaving you in a position where you can’t quite get another part-time job. Since fewer hours equal less pay, you might be short on funds for a while. Without a savings buffer to fall back on, you could be left in a bind.

7. Your child needs an urgent medical treatment. Even if you have health insurance, you may need to foot the bill for out-of-pocket costs until you reach your deductible.

8. You get hit by a car and are bedridden for several months. Over the years, car wrecks have been the source of many people’s financial woes. And since no one ever plans for them, they can leave you and your finances in a world of hurt.

9. A friend or relative in crisis moves in with you for a while. Even when you’ve been spared your own crisis, you may be called upon to help a family member or friend through theirs. Having an emergency fund can help you stay afloat while helping someone you care about.

10. You or your spouse slips into depression or another difficult mental state. Clinical depression is real, and being depressed is not conducive to living a productive lifestyle at all. If you or your spouse is battling depression, it might be difficult to earn an income for the time being.

11. Your identity is stolen, locking you out of your credit cards and/or bank account for a while until the issue gets straightened out. If your identity is stolen, it might take a while to sort it all out. In the meantime, you may not have access to your credit cards or debit card. In some cases, you might even need to put your primary checking account on hold. In this case, having a separate emergency fund could be a lifesaver.

12. You’re evicted from your apartment because of some unexpected issue. Moving is always expensive, but it can be a true budget-buster when you don’t have time to plan. Even worse, you’ll have to come up with the funds to put down on a new place right away as well. And unfortunately there are any number of reasons you could be forced to pack up on short notice, whether your landlord sells the building or bed bugs move in next door.

13. You discover your partner is cheating on you, and you feel uncomfortable living at home. If you find yourself living in an unsafe or uncomfortable environment, moving is probably your best option. Unfortunately, without the proper funds, you could wind up with no place to go.

14. Your dream job comes along, but it requires a steep drop in pay. Having money in the bank gives you options, and that includes the option to earn less if you need to. With an adequate emergency fund, you could go ahead and take your dream job and work on rebuilding your income over time.

15. You’re driving along when suddenly plumes of smoke appear from under your hood and every light on your dashboard flashes on. When you’re living paycheck to paycheck, this is one of the worst things that can happen. Not only will you have to pay for a tow truck, but you’ll be faced with a hefty repair bill as well.

16. You or your spouse has a drug, alcohol, or gambling problem that begins to spin out of control. Hidden addictions to drugs, alcohol, and gambling can take a staggering toll on your finances. If you have an emergency fund, you’ll be in a better position to face the problem head-on.

17. A relative or friend of yours passes away suddenly in another part of the country (or the world). Making a cross-country or international journey to a friend’s funeral can be extremely costly. Not only will you have to pay for airfare or train tickets, but you may have to rent a hotel room for a few days as well.

18. You find an amazing bargain on something you’ve looked for all of your life, but it’s still costly. If a once-in-a-lifetime purchase pops up and you don’t have the funds to buy it, you’ll be out of luck.

19. You start needing a medication that’s not covered by your health insurance. Having health insurance can help you avoid huge medical bills, but that doesn’t mean your plan covers every medication under the sun. Instead of suffering through it or spiraling deeper into debt for your health’s sake, having an emergency fund can help you afford the medication you need to get better.

20. An unexpected professional change forces you to relocate quickly. What happens if you get offered an amazing promotion across the country, or your company decides to shut down its local offices? You have to move – that’s what. Unfortunately, without a savings buffer, you could be stuck where you are.

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.

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