Five Unforeseeable Expenses that Make an Emergency Fund Necessary
The term “emergency fund” sounds kind of scary, but don’t misconstrue it to be some kind of personal disaster relief plan. Complete disasters are why you have home and health insurance. The “emergency” part of the emergency fund can simply be said to mean “unforeseeable expenses”, or things that you didn’t anticipate having to pay for in a given month.
For starters, an emergency fund is a certain amount of savings ranging anywhere between $2000 and $10000. It’s essentially a buffer between your paycheck and any unexpected outflows of money that you might have little or no control of. This is money that is set aside so that you can deal with that type of situation without interrupting you regular cash flow.
But what are some of the situations that come up and require the availability and use of money in an emergency fund? There are a whole host of examples, but we’ll cover the most typical ones here.
1. Car Trouble, Parts and Repairs
You can’t anticipate car issues ahead of time and many of them can be extremely costly. Even the somewhat predictable maintenance items like changing tires can run you close to $1000, which isn’t something we’re likely to think about throughout the year. A cracked windshield, engine trouble or any other kind of mechanical issue can get expensive in a hurry, and if you don’t have money set aside, you’ll be playing catch up just to break even.
2. Hospital bills that insurance doesn’t cover.
Insurance can be an extremely fickle and unpredictable thing, particularly the health variety. A good employer based insurance plan will cover most of your medical expenses and provide a safety net in the event of a disaster. However there are often segments of hospital bills that your insurance company won’t cover for whatever reason. In that event, having money set aside means you’ll be able to afford to pay these outright without breaking your weekly cash flow.
3. Non-aesthetic Home Repair
There’s plenty that can go wrong in your home and if it’s something vital to everyday life, like the toilet, air conditioning or an appliance, you’ll need to come up with the money to fix or replace it. You’re likely to go for long stretches of time in between these kinds of home repair problems, though when they come up and you either have to hire help or buy a new washing machine, it’ll be a huge help to have the money set aside to do so.
4. Dental and Eye Care
Some people have jobs that provide a dental and eye care plan, though it’s not nearly as typical as general health insurance. If you’re not covered, trips to the dentist and eye care specialist will either be reasonably affordable or expensive depending on what kind of work you need done. Don’t assume that your teeth and eyes are never going to need work, and keep the possibility of a $1000 dental bill in the back of your mind when planning how much to save.
5. Gifts, Donations or Helping Loved Ones in Need
Even aside from the Christmas season, there are instances that will come up when you’ll want to either help, or gift people. While weddings and birthdays are mostly foreseeable, friends and family who might be in need of financial assistance often are not. In all those situations you’ll be better off if you can help them without breaking your own budget, having saved the money ahead of time.
People find a lot of different reasons not to save money and there are plenty who just can’t. Though it’s crucial to keep in mind that there are a lot of expenses life throws at us that we have no way of predicting or planning for. The only way to truly prepare is to be ready for anything.
An emergency fund accomplishes that by creating a firewall between your regular income and life’s unexpected financial demands. Don’t put it off if you can help it.
Chantille Watson is a personal finance expert who enjoys giving readers a heads up about money saving tools and sites like the Choosi insurance comparison website.
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Category: Budget
