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Alanis Morissette famously sang, “Life has a funny way of sneaking up on you when you think everything’s okay and everything’s going right,” in her song “Ironic.”
Life sometimes throw us curve balls, so it is good to have a backup plan in case we encounter problems down the road. That way, when things pop up as they always do, you’ll be less stressed about handling them.
Why is having an emergency fund so important? Here are just some of the things that saving for a rainy day will enable you to sail through.
1. You Lose Your Job or Take a Pay Cut
Sure, you might have a decent salary now, but what if they were to fire you tomorrow or ask you to take a pay cut? If you’re married, think about what would happen if your spouse faced the same issue. That’s why it’s important to stash money away so that if you suddenly find yourself without a job, you can still stay on your feet until you find something else.
2. A Major Illness Occurs in the Family
We never want to think of something horrible happening to the people we love. We always want them to be healthy, but not everyone is so lucky. Insurance sometimes won’t even cover the things we need when we’re faced with hospital stays, expensive tests, and prescription drugs. An emergency fund will help buffer the costs so you can focus on helping your loved one heal.
3. Car Problems
You may have paid off your car a while ago, but that won’t stop it from having problems. Repairs are expensive and if your warranty won’t cover it, having money saved will allow you to get your car up and running again.
4. Car Accidents
Nothing is scarier than a car accident, except perhaps the hospital bills and fees associated with them. Should a car accident keep you or your spouse bedridden for months, an emergency fund will help your family pay the bills despite this setback.
5. Your Rent Increases Substantially
Finally, one thing that is imperative to plan ahead for is rising rent costs. If you’re renting, you’ve probably experienced at least one rent increase during your time as a renter. Sadly, if you can’t afford a home yet, you’re doomed to keep paying higher and higher rent checks every month. You can move to a cheaper place, but the costs of moving are high too, so saving now spares you some of the agony associated with this bump in the road.
So how much should you save? Financial experts advise that a bare minimum of 2 weeks pay or $1,000, whichever is greater, should be in your emergency fund at all times. Ideally, you’ll seek to build it up. A great way to do this is to find a bank that pays high interest on savings. That way, you make the most out of your money and you just might find that your emergency fund can double as a vacation fund when life is actually working out.