Benefits of an Emergency Fund and What to Do if You Don’t Have One

You must have heard this before – you need to have an emergency fund. The question is whether or not you have taken that advice. Nearly 1/3 of Americans haven’t, and because of this, they don’t have any money to pay for unexpected expenses. This means you might need to get one of the easy personal loans that are available or even stoop to getting a payday loan or borrowing a bit of money from a family member.

If you don’t have any sort of emergency fund and get hit by one of the unforeseen events that we will discuss, you might be forced to rely on things like credit cards, tapping into your retirement account, or some other source.

Take a look at these reasons you need to start saving money on everything in order to build an emergency fund so that you will be prepared when there are unexpected expenses.

Medical Expenses

Taking a trip to your local emergency room could possibly create serious financial issues when you don’t have any health insurance. Even those who do have coverage and need something like surgery might still have to shell out money to take care of things like deductibles and co-pays.

You might be thinking, “Isn’t that the purpose of a flexible spending account – to pay for those medical expenses that are out of pocket?” The answer is yes, however, if you are typically healthy and don’t generally have any sort of major medical expenses, the chances are good that you didn’t set enough aside to be able to cover all of the expenses that might be incurred. For example, if you have to have an emergency surgery of some type, you might use all of the money in your flexible spending account and still be left owing thousands of dollars.

Car Repairs

Some people might think to use their credit cards to pay for something like this. However, what if you are driving across the country and your car breaks down in a small town that only has one mechanic and he doesn’t take plastic? Or the repairs are more than your available balance? You might use your debit card to empty your bank account, but what if that isn’t enough to cover the repairs?

Home Repairs

You probably have homeowner’s insurance that will cover your major expenses. However, if your deductible is high, would you be able to find the cash you will need to cover it? Additionally, insurance won’t pay for everything that might go wrong. This could mean that you have to shell out large sums if you are a homeowner. For example, your hot water heater or furnace might break. Homeowner’s insurance typically won’t cover these things.

Possible Solutions

So, as you can see, an emergency fund is necessary. If you don’t have one, you might use your credit cards to cover the expense. If you have bad credit and don’t have any credit cards, you might want to see about taking out a personal loan.  This might be a better option than getting a payday loan or borrowing money from family. All of this can be avoided though if you just start saving for the unexpected.