Everyone is all-too familiar with unexpected, expensive life events: you have a medical emergency, you spent too much on your credit card last month or you lose your job. We’re here to help saving make sense with tips on how to build an emergency fund and why it’s important. Saving money for an emergency fund may sound complicated and stressful, but it doesn’t have to be!
What Is an Emergency Fund?
An emergency fund acts as a financial safety net that can help you cover the cost of emergency expenses. Emergency funds can help you avoid turning to other methods of payment, like high-interest credit cards, to cover an expensive situation.
Why Should You Have an Emergency Fund?
When it comes to saving money for life’s crises, preparation is key. Thankfully, safeguarding your finances with an emergency fund can be help give you peace of mind when unexpected costs come your way. Here are some top reasons why everyone should have an emergency fund.
1. Medical costs can be expensive.
Medical bills can be expensive, even with health insurance. You may have to use sick days, pay for expensive tests or max out your deductible to get the care you need. An emergency fund can make things a little easier by helping you pay for health care costs.
2. Savings goals can be hard to reach.
Saving for something big, like a house or starting your own business? Your emergency fund can prevent you from dipping into the savings you’ve accumulated for your goals when accidents arise.
3. Pet emergencies happen.
Our furry friends need medical care just like us. Pet illnesses and injuries can cost a lot of money. If you call the vet for an after-hours emergency, or if your pet needs diagnostic testing, an emergency fund can be applied to a vet bill that could take months to pay off otherwise.
4. One source of income isn’t always enough.
What would happen if you lost your job or contracted an illness that prevented you from working? If you live off of one income, having an emergency fund is even more critical.
5. Getting out of debt is liberating.
Getting out of debt is a lot easier when you have an emergency fund dedicated to paying for bumps in the road. You won’t have to worry about acquiring even more debt to pay for your emergency when you have an emergency fund tucked away.
6. Home repairs can be costly.
Owning a home is a huge accomplishment, not to mention a responsibility. As a homeowner, you never know when you’ll encounter an unexpected expense. With an emergency fund, the financial stress can roll off your back.
7. Saving for travel is smart.
If you live far away from family, traveling home regularly can get expensive, especially if you’re doing it at the last minute for a crisis. With an emergency fund to back you up, you’ll be able to pay for the cost of a trip home, no problem.
7. Saving for travel is smart.
Experts recommend having enough money in your emergency fund to cover at least three to six months of living expenses. So, what are your living expenses? Anything absolutely essential to your survival, like:
- Housing and utilities
- Health care
Where Do You Keep Your Emergency Fund?
Your emergency fund is different from your savings, so it should be treated as a separate account. Emergency funds need to stay protected but accessible. Financial experts recommend opening a money market fund due to their low-risk, interest-bearing and accessible features.
If you’re stressing about opening your emergency fund, remember that something is better than nothing. Even if you set aside $25 every week for a year, you’ll have put $1,300 toward your emergency fund.
3 Extra Benefits of an Emergency Fund
In addition to the financial stability that comes with having funds reserved exclusively for the unexpected, there are other benefits to having an emergency fund:
- Less stress: Unforeseen circumstances threaten your financial health and stress levels. Without a financial safety net to fall back on, an emergency expense could bring chaos to your life.
- More accountability: Although your emergency fund needs to be accessible when you need it, maintaining a distance from your money can be important. When your emergency fund is out of your immediate reach, you won’t be able to spend it frivolously.
- Wiser financial decisions: There are plenty of ways to get money quickly during an emergency, but at what cost? Credit cards, withdrawing money from a retirement account, or asking friends and family for money comes with interest, fees and stress. An emergency fund can help you become more financially responsible and independent.
One of the most important ways that you can further protect your finances is by having health insurance. VelaPoint Insurance can help you find the right coverage to fit your lifestyle, budget, and health needs. Give us a call at 855-548-0727 to speak with a licensed VelaPoint agent who can discuss your health insurance options with you today!