I have recently gone into a bit of a freak out recently because I have realised we do not have enough money stashed away to cover emergencies. This especially hit home after I was made redundant but could not engage in full time work again because I had returned to full time university studies.
If you do not have an emergency fund set up here are six reasons why you need to make one today.
Sickness or Injury
If you become injured or sick, this could cause massive financial stress to you and your family. First you need to consider costs of your medical bills and potential ongoing treatment. Does Medicare or your private health insurance cover all of this? Unlikely. Secondly what kind of insurance do you have-most people are underinsured meaning they do not have enough insurance to cover these expenses. What if you cannot return to work for a while (or at all)? How will your mortgage and bills be paid for? How are your children education expenses going to be covered?
Loss of Job
Every day I read the paper, and every day there are another 500 people from whatever company being laid off. And those are only the ones we hear about. Economic times are still uncertain, and the main sectors of jobs are constantly changing. Sometimes it can take months or even years to find another job and you do not want to be going into debt during this period.
Throughout this year we have had two major storms which affected my parents-in-law home. All of a sudden the whole bottom level of the house flooded causing massive damage to the house and the furniture. Whilst home and contents insurance covered some of the expenses of replacing this, it does not cover the money that is needed to fix the problem-a drainage and rework which is going to cost $40,000. Now I don’t know about you but I wouldn’t be able to find that kind of cash. If it is not fixed and another storm hits it will likely cause even more damage.
Things get old
The reality is that things get old and need to be replaced. Most commonly this is more electrical goods but these days things just aren’t made to last. Even if our fridge went on the brink that is $1000 we would have to account for aside from our monthly expenses.
Easy to access
If you didn’t have an emergency fund and you quickly needed the funds what would you do? Applying for a loan can take weeks for approval, credit cards aren’t excepted everywhere and you wouldn’t want to have to sell stocks at a loss. Having a cash stash somewhere which you can access within a day is vital for emergencies.
Peace of mind
To me this is one of the most important reasons to have an emergency fund. The stress relief knowing that you have enough to cover in case of emergency is more meaningful to your health than anything else.