Chances are you've heard that you need an emergency fund, but why? Why is it so important to have an emergency fund? You have the money to cover your bills each month and have a good job. This may lead you to believe that an emergency fund isn't necessary. That couldn't be further from the truth. Let's take a closer look at reasons you need an emergency fund.
You Own a Home
If you own a home, all repairs are going to fall on you. It may be a central air unit that quits working in the middle of summer or a roof that needs replaced. These things happen and you need to be prepared. In fact, it is recommended that you have a separate account just for home repairs. However, if you're new to putting money into savings, focus on building that emergency fund first.
Protection Against Unemployment
No one expects to become unemployed. While some companies may give you a bit of a notice, there are times when you go to work to find the company closed. It happens. You will qualify for unemployment, but there are times when finding another job will take longer than your unemployment will hold out. Also, unemployment doesn't pay much. An emergency fund can help you make it through until you find another job.
In Case Your Health Fails
Another thing no one expects is for their health to fail. Unfortunately, it happens. You can be completely healthy one day and then have a heart attack the next. You may also be involved in an accident that leaves you disabled. You may even develop a health condition that prevents you from working. Getting disability can take years. This is why you want an emergency fund that will hold you over until you start receiving checks.
For Unexpected Expenses
Last, but not least, you need an emergency account for unexpected expenses. It might be a blown transmission in your car or the cost of an ER visit. When you have an emergency fund, you won't have to rely on credit cards to pay those unexpected expenses.
An emergency doesn't have to be large. Start out with $1,000 in your account and work up from there to 3 to 6 months of expenses. If you have an emergency that empties your account, start over as soon as possible. An emergency account can mean the difference between struggling and being able to cover an unexpected expense without any problems.