7 Reasons You Need an Emergency Fund

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Saving up your hard-earned cash to stash away an emergency fund?

Well, it can be a hard sell. Spare cash can be hard to come by, and, after all, taking a vacation is a heck of a lot more fun.

Or at least a lot of us seem to think so. According to a nationwide survey conducted by LearnVest and Chase Blueprint, less than half of respondents are currently building an emergency fund. (Those who are have currently saved up about $15,000, and we applaud them.)

The idea behind an emergency fund is to store at least six months of net income for the sake of “just in case.” Just in case your job goes “poof.” Just in case your car conks out. And a select few other things we’ll explain below.

Does that mean an “emergency” outfit for the film festival (rumor has it Jude Law will make an appearance)? That big trip your teen suddenly wants to take this summer because “everyone else is”?

Not exactly.

We’ve written before about exactly what counts as an emergency. One of the biggest reasons to have an emergency fund is to avoid going into debt for a cost you just can’t avoid (i.e, not celebrities or peer pressure).

In our survey above, 31% of respondents said that credit card debt was a significant impediment to reaching their financial goals, and they each had an average of $5,000 to pay off. Well, guess what? If they had an emergency fund, they shouldn’t need to get so far in the hole in the first place.

Don’t believe us? Planning to spend your money on something sexier? Nothing’s sexier than being worry-free.

Here are the top seven reasons you need an emergency fund:

1. You’ve Received a Pink Slip

It usually isn’t as dramatic as Donald Trump proclaiming “You’re fired!” In recent years, it’s looked more like rounds of layoffs spurred by economic turmoil. Or maybe you chose to resign because your job is taking a serious toll on your mental health and you were burning out. Whatever the reason, you need a way to pay your bills until you establish another source of income–and your emergency fund should be it.

2. You Can’t Shake That Cough

Robitussin isn’t cutting it anymore. You need to go to the doctor, and then maybe the doctor again, and possibly even the hospital. Most health insurance plans only go so far–when it comes to hospital visits or other major medical costs, it’s likely you’ll be required to supplement your coverage (if you have it). With an emergency fund, you won’t have to choose between your well-being and your rent.

3. The Only Job You Can Get Is Three States Away

According to our survey, 60% of respondents have, at some point, had the experience of being unemployed and looking for a job. And as we all know, when things are getting financially tight, we need to consider any suitable position that crosses our path … whether it’s where you live … or in Portland. Between finding new housing, arranging to transport your things and the million other little costs that come up along the way, a move is expensive, but it can be unavoidable.

How can you help finance an emergency move? You guessed it.

4. Your Car Makes a Funny Grinding Noise …

When your main mode of transportation is compromised, it’s a bigger issue than being unable to hit the drive-thru on your lunch break. It compromises your ability to get to work, to care for your family, to stay safe. As such, it needs to be fixed immediately. Or, in a worst-case scenario, replaced. Your emergency fund means you won’t have to go into debt to do so.

5. You Need to Get to the ER. Stat.

Did you know that in many cases, you have to pay for some or all of an ambulance ride to the hospital? (And if you don’t have health insurance, it’s even more likely you’ll be responsible for covering the whole cost.) If you get hurt enough to spend time in a hospital or emergency room–maybe even hurt enough to need surgery and physical therapy–you can’t always rely on insurance to cover the full cost.

6. Someone Close to You Passes Away

No one likes to plan ahead for mourning, but if someone you love does pass away suddenly, “I can’t afford the plane ticket” is the last thought you’ll want to have. If you have to travel to (or pay for) a funeral, burial service or any other bereavement-related expenses, your emergency fund can keep those charges off your credit card.

RELATED: 5 Money Mistakes Even Good Savers May Make

7. Your Roof Starts Leaking

If you own your home (like 70% of you said you did in our survey), you know that there are few things more ominous than watching the paint swell and crack above your head. It’s right up there with discovering a flood in the basement or setting the kitchen on fire before a particularly ambitious dinner party. First, make sure you have homeowner’s insurance. But, then, if an unexpected home-related expense pops up, rest assured that that’s part of what your emergency fund is there for.

  • Joshua Miller

    Great article, though one issue with it. The holiday acct is a good idea, but it might also be worth noting that places like the bank I’m at(a credit union) offer several useful accounts, especially for this matter. Say a ira(1.5% or 1.51% apy daily paid monthly), or even health savings(same interest as prior). It might also be worth noting too that if some banks are like mine for sake of education(though I didn’t know about this and it’s too late for me) there’s actually a acct that can be used to pay for college expenses given meeting requirements for that one. As well here’s a kicker for you teachers I also noticed at least with my bank: summer cash account. Sure it grows at the same rate as savings(for me 0.75% apy), but is available to public school, and community college teachers who are not paid on a 12 month basis.

    Personally this is what it means for me: once I pay off the card I got through my dad(since i’m only 19 going on 20, so I could purchase a game system which I’ll have paid off within the next month or two), I will probably take a bigger look at the accounts that are available. For now this might mean I will end up getting a roth ira, and holiday cash club accounts to sock money away in. Sure I’ll put money into my normal savings, but this stuff will be a part of the 20% I sock away each month(upon which I will either divide up by 3 or factor it out as 50/30/20 of that amount and probably put the 50 into savings, and still have to decide which gets the 30 and 20)….I really need to schedule a meeting with my cpa or people at my bank to figure this out….