The Top 10 Reasons Why You Need An Emergency Fund

Most financial gurus these days are going to tell you that there are two first steps to financial security that are the most important and crucial: pay down your debts and save an emergency fund. We all get the idea behind paying down our debts - the faster you pay them down, the better your credit score and the more money you’ll save on interest. Pretty simple. But what about emergency funds? Why is that right up there with paying down our debts? Why are emergency funds so important? They don’t improve your credit and they won’t earn much interest unless you invest them, so why do so many money coaches tell us to save for an emergency?

The answer is, of course, because life is unpredictable. There are so many ways that things can go wrong, but here are ten of the most common:

1. Injury/illness

Even at a desk job, you can be off for months recovering from carpal tunnel surgery. There is no job and no lifestyle that is exempt from the risk of injury and illness and there are tons of injuries and illnesses that are going to put you on the bench.

2. Car Repairs

There are precious few of us who have not experienced that moment of desperate hope when the mechanic is about to tell us why our car is making that horrific sound. For me, it’s often accompanied by a chant, “Please don’t let it be the transmission! Please don’t let it be the transmission!”. One broken transmission and we could be eating Mr. Noodles for the next four months. Unless, of course, you have an emergency fund!

3. Medical Bills

The worst souvenir to come home with when you go on vacation, is foreign medical bills that aren’t covered by your insurance. You can also accumulate medical bills domestically, for some services that don’t fall under the universal healthcare umbrella. These can add up, especially if you’re visiting the USA. An emergency fund can help you take care of unexpected medical bills without impacting too much on your month-to-month budget.

4. Losing Your Job

Mistakes happen, people get frustrated, personalities clash. Whatever the reason, people get let go from time to time. Even with a severance package, though, you’re going to want some emergency money to fall back on if this happens.

5. Employer Closing Doors

Even when the economy is doing fine, businesses close without so much as a hint that it was on the horizon. Employees can be left gobsmacked having never expected it.

6. Downsizing

I hear a lot of people talk about how secure their jobs are at publicly traded companies because their employer is posting record profits. Sadly, that’s when employees should start worrying because downsizing trends tend to come with record profits. We’ve all see the headlines, “Despite record profits, Acme Co. lays off 3000 workers”. Don’t get too comfortable, because business is loyal only to profit.

7. Major Home Repairs

As many BC residents discovered towards the turn of the millennium, even brand new condos are susceptible to huge issues. Many new condo owners found themselves having to shell out thousands and thousands of dollars to their strata council to repair their leaky roof, causing many of them to have to sell or foreclose on their property. Don’t get caught off guard like this. Be prepared for the worst, and save yourself some emergency cash for unforeseen issues like this.

8. Business Failing

If you’re self-employed, or have started your own business, there is always the possibility that it won’t take off, or business could slow down. 80% of all businesses fail - even if you work yourself to the bone, the odds are stacked against you, so if you’re going to take the leap into entrepreneurship, prop yourself up on some fallback cash… just in case.

9. A Death in the Family

There are so many reasons why a death in the family is the worst thing we can face, and one of the most overlooked in times of grief, is the fact that it’s brutally expensive. The least expensive burials and ceremonies can still run you into the thousands of dollars and if your deceased loved one didn’t have any money when they passed, it’s going to come out of the next of kin’s pocket. Luckily, you have an emergency fund, so you don’t have to worry about the money and can focus on your family and the grieving process instead.

10. Natural Disasters

In 2016, we saw the devastation caused by the wildfires in Fort McMurray. The entire city was displaced - families came back to their homes and vehicles in a pile of ash. While insurance does help cover your losses, you still need cash on hand to find your way out, put your family up somewhere, feed them, clothe them, and then find your way back. There are a lot of untold expenses that come along with surviving a natural disaster and the best way to make sure your family gets through it financially, is to have some money saved for just such an event, and stay positive that it will never happen.

An emergency fund can get you through a lot of things with your credit score intact, and still able to get by with your day-to-day expenses. The biggest mistake Canadians make is putting off saving for emergencies, because they’re confident nothing drastic will happen to them anytime soon. Life is unpredictable and you never know what’s coming tomorrow, so be responsible and set yourself up to succeed. Start saving your emergency fund now.

What are some of the other things that can happen that are easier with an emergency fund? Let us know in the comments!