Do I need to have emergency fund savings?

Having an emergency savings account is paramount for life’s curve balls — but most of us are unprepared.  A recent study by Bankrate indicated that most Americans cannot pay for even a $1,000 emergency with money from savings.

It won’t happen to me….

 But it does happen unexpectedly.  A few reasons why you’ll likely need an emergency savings stash.

  1. Job loss — between 2009 and 2014 20% of the workforce was laid off during the last recession.
  2. Auto Accident — over the course of your lifetime, statistics show you’ll get into 4 auto accidents (you may / may not be at fault).  Even if its not your fault, you may not be able to work or go back to work.
  3. Auto Break Down – Your car needs unexpected work.  My wife’s car unexpectedly had two wheels need bearings replaced urgently.  This was an unexpected $800 cost!
  4. Health Needs — broken bones, significant disease (eg cancer)
  5. Home Damage / Costs — you may not have insurance for damage caused, or your deductible is high. For example water pipe breaks, flood, earthquake.
  6. Parent / Relative Begins to Live With You — this could be because they need help with their care, they cannot afford to live alone, etc.

Real Life Emergency Savings Needs Often >$2,500

The study further asked those who did face a financial emergency, what the needed funds were.   The largest group of people said over $5,000 but even more interesting is that 58% said the costs were over $2,500 (adding the two highest groups).

Emergency Funds: Americans who had a financial emergency source:Bankrate

Data source:

Loans Take Time and Should Be Avoided

Getting money from a loan takes time usually. While a credit card would charge you 20% or more in interest — causing you additional financial constraint.  We do not recommend using credit card with revolving interest. Also, you will have to pay back a loan with regular payments.  Will you be able to repay the loan (with interest).

An emergency fund has the money immediately available — you’ve been planning for this just in case.   

The Emergency Funds Solution Is Simple

Start putting money away for a rainy day emergency.  Create a goal for a rainy day fund.  Maybe $1,000 at first or $2,500 … though eventually the emergency savings fund should be able to meet your financial needs for 3-6 months.  Starting at what you can afford in your budget, even if its $25/month. See some additional detail about this in our post on emergency savings

Its best to have funds socked away for a rainy day.  You never know.  See our other posts about saving money.

Do you have any experiences regarding emergency or rainy day savings?



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