It’s no secret that unexpected expenses can be a major pain in the neck. But for many people, these expenses are more than just a small problem. In fact, 60% of Americans don’t have the finances to cover an unexpected $1,000 emergency.
From unexpected bill increases to job loss, an emergency fund can help to protect your financial well-being from a slew of worst-case scenarios. It’s true that you can put some expenditures on your credit card, but if you’re not careful, you could suffer some serious financial consequences.
Here are a few reasons why it’s a good idea to establish an emergency fund of your own and how you can do it.
Emergency funds protect your savings
When people think of an emergency fund, they often think of their savings. But it’s actually important to make your emergency fund into a separate savings account. Why?
Your emergency fund is for an expense that you need to pay for right now such as a medical expense or car repair. Your savings are funds for the future and it’ll take decades to save up enough to feel secure.
Remember that your retirement funds aren’t just there for you to relax after a life of working. About 52% of people turning 65 will need some type of long-term care in their lifetime.
When you take from your savings account to pay for an unexpected emergency, you’re creating more stress from yourself further down the line.
Emergency funds protect you from insufficient insurance
Medical emergencies take many shapes and affect millions of people every year. Approximately 28,630 people are diagnosed with spinal cord cancer annually, and over 1.5 billion people live with chronic pain.
Whether you’ve found a lump or you’re suffering from appendicitis, it’s crucial that you get the medical treatment you need. Certain conditions like functional cysts may go away without treatment within six weeks, but that isn’t always the case.
Unfortunately, a serious medical condition can max out your deductible every year and insurance companies may not pay for everything that you expect them to pay for. Emergency funds can help to offset unexpected payments you might need to make to pay for tests and treatments your insurance doesn’t sufficiently cover.
Emergency funds keep your car on the road
The summer months are considered the 100 Deadliest Days of the year by the American Automobile Association. This is because there are more teenage drivers and motorcyclists on the road now that school is out and the weather’s warm.
However, car accidents and unexpected damage can happen at any time of the year. An emergency fund can ensure you’re ready to face those unexpected expenses head on without worrying about how you’re going to pay for a new part.
How do you save for an emergency fund?
It’s one thing to know you need an emergency fund and another thing to build one. With so many Americans struggling to save for retirement on stagnant wages, it can be challenging to find a way to save for an emergency fund, too.
But you don’t need to put $1,000 into an emergency fund right now. Start by putting aside $20 every paycheck into an account outside of your savings account. Over time, these small savings will build up to create an emergency fund you can use for whatever unexpected expenditure you need it for.
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