An Emergency Fund- Do You Really Need One?

An Emergency Fund is a cash reserve that is specifically set aside for unplanned expenses of financial emergencies. Financial emergencies, by their nature, are unpredictable, but do I really need one if I have credit cards with a large open to buy?

When an emergencies happen, they can derail your financial stability. A sudden illness or accident, unexpected job loss, or even a surprise home or car repair can devastate your family's day-to-day cash flow if you are not prepared.

While an emergency fund will not solve all your money problems, it is a great start to getting your finances headed in the right direction. Even if you can't imagine a scenario where you would need rescuing, remember; anything can happen. Aside from financial stability, there are other pros to having an emergency reserve of cash.

Stress - Managing your budget can be stressful, especially if you have an emergency pop up. It's no surprise that when life presents an emergency, it threatens your financial well-being and causes stress. If you are living without a safety net, you are living on the financial edge, hoping to get by without running into a crisis. Having an emergency fund gives you the peace of mind to know that should something truly awful happen, you can worry about how to deal with the emergency itself and not worry about how you are going to survive financially.
Destroying Your Budget - You may inadvertently leave out some of the expenses that you need to plan for. Your emergency fund can cover some of these expenses the first year, and then you can add those expenses into your budget as they come up. No matter how well you prepared your budget, life has a way of throwing curve balls that you never expect. Those unexpected expenses, that you did not account for in your well prepared budget, are reason many financial professionals suggest having an Emergency Fund tucked away.
Debt - Your emergency fund can help you stop adding to your debt with every financial bump in the road. There may be other ways you can quickly access cash, like borrowing, but at what cost? Interest, fees, and penalties are just some of the drawbacks. Use your emergency fund to handle stressful events and make it easier for you to stay focused on getting out of debt.

Saving money at any time isn't always easy, but it is easier to save when you can do it without stress. In addition, it is less painful than the alternatives like having unpaid medical bills and dealing with collection calls; additional interest and fees on your credit cards and checking accounts; taking money from your retirement nest egg.

Bottom Line-an emergency fund is the backbone of a strong personal financial plan.

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