12 Reasons you NEED an Emergency Fund

Up until several years ago, I had never heard of an emergency fund. A vacation fund, yes. A retirement fund, of course, but an emergency fund? The thought never really crossed my mind. If something came up we would just scrape together any cash we had and hope it was enough. Once I discovered what and emergency fund was and why we desperately needed one, we began throwing a designated amount into a high yield savings account. Fast forward a couple years to when we noticed water rapidly dripping from the ceiling in our then rental property only to find a busted water heater and a flooded attic… you bet I was glad to have some extra money in my emergency fund! A survey conducted by Bankrate in 2022 concluded that only 4 out of 10 Americans would be able to pay for a $1,000 unexpected expense. So why do you need an emergency fund and what constitutes an emergency? I’m glad you asked. Here are 12 reasons building your emergency fund should be a top priority.

Job Loss: This is one of the biggest reasons you should have a fully funded emergency fund. 3-6 months of living expenses will ensure that if you lose your job, you will be able to continue with your usual routine until you can find another source of income. In today's world, very few jobs are guaranteed and imagine how much better you will sleep at night knowing if tomorrow you were pulled into your bosses office for "the talk", you would have no need to worry because you have enough to provide for your family until you find something bigger and better. Illness: Things happen, and illness is one of those certainties in life. You can spend three hours a day in the gym and eat kale for every meal, but ultimately there will be a time when an unexpected medical expense will arise. Having an emergency fund will help cover any unexpected medical bills that may arise either for yourself or your children. Recently I had carpal tunnel surgery on my wrist. After years of pain and numbness I finally bit the bullet and went through with the surgery. Having insurance, I thought, a couple hundred for the co pay and bada bing bada boom! No more pain! Well, one of those turned out to be true. My hand now feels great, my bank account had a panic attack when I saw the bill for almost $1,200! What?!?! Where do I sign up for the job that pays that amount of money for a 30-minute procedure? Needless to say, emergency fund to the rescue!

Car Repairs: Car related emergencies really stink because they always seem to strike at the worst time. Leaving for work only to find that your car will not start (yeah, this totally happened to me on the first day of school!) or getting a flat tire while driving your kids to baseball practice can really put a damper on your day. At least with an emergency fund it won’t put a damper on your wallet!

House Repairs: This kind of emergency goes right along with car repair. It appears out of the blue and most of the time you never see it coming. Owing a home can in and of itself be stressful. Add busted water heaters, or your AC going out on the hottest day of the summer or having cats who refuse to throw up on the hardwood and insist on puking on the carpet... not that I'm speaking from experience, can all bare a pretty hefty repair bill. Or carpet replacement. Being able to cover those unforeseen home repairs without using a credit card can ease the frustration. Like they always say, it's not a matter of if it happens. It's a matter of when.

Hey Baby: Finding out you are bringing a new life into this world can be the most exciting and scariest moment of your life all at the same time. Babies are expensive and when you only have 9 months to plan, the financial aspect can become overwhelming. Diapers and bottles and butt paste, oh my! Keep in mind that you are not only planning for you and your partner anymore, you are planning for 3 now (or 4 or 5). According to Forbes.com, the average out of pocket cost for having a baby, with insurance, is $2,854. Identity Theft: If you are one of the unsuspecting victims of identity theft, banks could shut down your credit and debit cards while things are being sorted out. Don’t get caught without a bit of cash to get you through until everything is worked out. Better safe than sorry. Death Of A Loved One: We recently went through this situation and let me tell you, having to think about money while the whole family is mourning causes stress. Sadly, funeral services can feed off the vulnerability of those grieving. "Now, here is the package your loved one chose, but, for only $300 more, your loved one can have a much more beautiful flower display", says the funeral coordinator. Going through something so heartbreaking should not involve heavily vested financial decisions. We were fortunate that our family member was close by. If a friend or family member passes away and lives in another state or country, travel expenses can really add up. Having money in your emergency fund can ensure that you will be able to show your family and friends the love and support they need. An Accident: Yes, they do happen and God forbid you are in one that leaves you bedridden for an extended period of time. Having that money in your emergency fund is going to be a life saver, literally. This is especially true if you have family members who depend on you. Having that financial buffer as a just in case can provide peace of mind. Medications NOT Covered by Insurance: Everyone’s been there. You go to the pharmacy to pick up your medication only to have the cashier give you an absurd amount for your total. What do you do if it is a medication you really need? Hello, emergency fund. Thanks for picking up the slack from my insurance company!

Emergency Vet Bill: Several years ago, we had an incident where we noticed our youngest cat had a HUGE gash in her tail. I’ll spare you all the gory details but it was enough to warrant a trip to the emergency vet. It was that night that I decided in my next life I am going to be an emergency veterinarian because my hands are shaking as I type this just thinking about how much we paid for that visit. But, I mean, anything for our fur babies, right?

Unexpected Tax Bill: Every year around tax time we have mixed feelings because we know there is a 50/50 chance that we will either get some money back or have to pay. Unless you are a tax expert, which I am not, it’s hard to know if you will be owing Uncle Sam each year. It’s always better to prepare for the worst and hope for the best.

Peace of Mind: If anything, an emergency fund can help you rest assured that if something happens, you will be prepared and if it doesn’t, you’re sitting on a nice fat chunk of change. The peace of mind alone is worth its weight in gold.

Just remember to keep your emergency funds in a high yield savings account. Your basic savings account offered by your bank will only give you around .20%... if you're lucky. Check out high interest accounts like LendingClub and Marcus by Goldmnsachs to find great interest rates on savings accounts.