It doesn’t have to be pouring outside to be glad you have “rainy day” savings.
An “emergency fund,” one that can fully cover three to six months of living expenses can be a lifesaver in times of uncertainty — a sudden layoff, a sudden move or another unforeseen life change.
But is it really necessary to keep thousands of dollars available, just in case? Here are five reasons to strongly consider keeping an emergency fund.
You’re covered if you lose your job
Don’t let yourself fall into the trap of thinking “it will never happen to me.” Unexpected job losses can take anyone by surprise, whether it be due to cutbacks, bankruptcy, or job performance. Even someone in a seemingly secure or tenured position can lose their job under certain circumstances.
Depending on your field, it could take days, weeks, or months to find a new position. An emergency fund will allow you to stay financially stable for a few months as you search and interview. Without this fund, you’re likely to take to your credit cards and rack up high-interest debt as you struggle to pay the bills without a steady paycheck.
It’s a freelancer’s best friend
If you’re your own boss, it’s can be even more important to keep a healthy emergency fund. Since your income is variable, you’ll need something to draw on during lean months if necessary. Loss of a steady client or late payments can throw the best budgets out of whack. A strong savings bucket can ease the strain during lean times.
Forgotten or unexpected bills won’t derail you
Even the best budgeters and planners may sometimes forget about large expenses, like yearly renewals, professional dues or a tax bill. Without an emergency fund, you may be left scrambling to pay on time — plus interest.
You’ll also always be covered for unexpected expenses, like expensive car or home maintenance costs, medical needs, or extra necessary child care expenses. Saving for emergencies means you’re always covered when you forget about a bill.
You’ll never pay credit card interest
Being able to handle forgotten and unexpected bills also means you’ll never pay credit card interest. An emergency fund is a much wiser alternative to a high-interest payday loan, credit card or credit line. This interest will add up over time, making your tough financial time even tougher to dig out of.
Paying interest is, for most people, a necessary evil for things like mortgages and student loans. However, paying interest on normal expenditures should be avoided at all costs. Having an emergency fund could save you hundreds or even thousands in unnecessary interest charges.
You’ll never be “that friend”
We know people who just can’t seem to get ahead of their finances — when life throws a financial curveball, they can’t cover themselves and end up having to hit up their friends for cash.
Here’s the thing: Borrowing from someone you have a relationship with puts both parties in an awkward situation, or a loss of that relationship. By saving emergency money, you’ll never have to be the one to go to friends and family asking for help until next payday.
You’ll sleep easier
Life is just generally much more stressful when you know you’re one emergency away from financial ruin. By saving up an emergency fund, you’ll sleep more easily knowing that you can handle the money troubles life will inevitably throw at you.
Losing your job, taking care of a sick family member, or replacing your home’s roof are all situations that are stressful enough without having to worry about going into overdraft. A full savings account will give you the confidence to deal with any emergency. And by keeping the money liquid and easily accessible, you’ll be able to react at a moment’s notice.