The Importance of Having an Emergency Fund

Monday, May 3, 2021


 No matter whose advice you take when getting your finances in order, there's one common step that everyone seems to suggest and that's having an emergency fund in place.  This step is done early in the process of getting your finances in order and that's because it's super important to have one. 

An emergency fund is usually $500-$1,000 depending on your financial situation that is set aside to be used ONLY in emergencies.  And no, not shopping emergencies! Literally, this should only ever be used for an actual emergency like if something happens to your vehicle, you don't have enough to cover medical costs, etc.   But why is it so important to have one? 
It prevents you from using debt.
If an emergency arises, rather than use a credit card or borrow money from someone else, you already have the money available to you so you don't need to burden yourself anymore.  For someone actively paying their debt off, it's terrible when you end up going back into more debt to cover an emergency.  
It prevents you from using your savings. 
The emergency fund should be separate from your regular savings, since you don't want to ever tap into that.  The emergency fund allows you to get financial relief without having to take money out of a savings fund that should otherwise remain untouched. 
It gives you peace of mind. 
If there is some sort of emergency that is stressing you out, stressing about how to pay for it is just added onto your shoulders.  But if you have an emergency fund,  that's one less stress you have to deal with.  You know how you'll cover the cost because you've planned for emergencies like this one. 

So really there is no good reason NOT to have an emergency fund in place.  And if you have one in place and you have to take money from it, make sure you replace that money as soon as you can so you still have an emergency fund.  
Do you have an emergency fund and have you ever had to use it? 

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