4 Reasons to Have an Emergency Fund

iQuanti: Getting a flat tire or taking a pet to the emergency vet can knock you back financially. And emergency reserves can be the difference between going into debt over an unanticipated expense and taking care of it with ease. If you’ve been thinking about starting an emergency fund, here are four reasons why you should have one.
What is an emergency fund?
An emergency fund is dedicated savings reserved for emergency use. For example, you might turn to it to cover an unanticipated car repair, sudden medical bills, or job loss. There are so many uses for an emergency fund, and having one is critical to putting you in a stable financial position. A good rule of thumb is to save three to six months’ worth of living expenses, like rent, food, and bills, in your emergency fund.
Why you should have an emergency fund
An emergency fund relieves the financial stressors associated with emergency situations. Here are four compelling reasons why you should have an emergency fund:
1. You want to avoid taking on more debt
Often in an emergency car repair or medical situation, people will look to credit cards, online loans, or other sources of debt to cover the costs. But having an emergency fund means you can use the cash you already have on hand. In addition, since you don’t need to pay interest, you’ll actually be saving money instead of taking on debt to cover your emergency expenses.
2. You want a safety net if you leave your job
If you lose your job or decide to leave voluntarily, an emergency fund can afford you the time to choose a new job that you really enjoy. Failure to have these funds set aside means you may need to grab the first thing that becomes available. But the freedom and options that come with having an emergency fund mean you can choose what’s best for you, not what you have to do to pay for the next round of bills.
3. You’re self-employed or have inconsistent income
If you run your own business or work on commission, your income may come on an unpredictable schedule. An emergency fund can help you cover anything that might come up when you’re waiting on more money. It also affords you the freedom to try new things in your business or pivot to a different strategy without worrying about the short-term financial implications.
4. You’re supporting a family
When you’re just supporting yourself and don’t have as many responsibilities, having emergency reserves may seem less important. But if you’re supporting a family, it can matter a lot more.
As your family and responsibilities grow, your emergency fund should grow along with it. And having this money set aside can give you peace of mind that you can care for your family and provide for them financially no matter what comes your way.
The bottom line
An emergency fund is a crucial component of any financial plan. And having one is critical for those who have inconsistent income, want to avoid taking on debt, seek job freedom, or support a family. With the peace of mind an emergency fund delivers, you’ll be able to pursue bolder financial dreams without worry.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.
Source: iQuanti, Inc.