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The Importance of Emergency Funds
If you’re like most people, you wonder just how important the existence of an emergency fund is. As it turns out, it’s vital. Taking time to save a portion of your income can be extremely beneficial during hard times. Financial advisers preach the importance of having an emergency fund for various reasons, but the following are some of the most important.
Protects Against Medical Expenses
More than 8 out of 10 people will visit a medical professional during the year, and the costs for doing so can quickly add up. This is especially true if you tack on the added expenses of visiting an emergency room.
An unexpected medical bill can wreak havoc on your finances, but having an emergency fund can help. Even after the help of medical insurance, this fund will assist in paying high insurance deductibles. Also, if you don’t have insurance, this type of fund can help you pay for the same costs out of pocket.
Covers Emergency Travel Expenses
There aren’t many reasons you need to travel at a moment’s notice, but it’s important to be prepared if the time comes. If a situation calls for you making unexpected travel arrangements, an emergency fund can help you with extra costs. Last minute arrangements tend to be more expensive than if you plan ahead. Things like airline or gas fare, hotels, food and time taken off of work should be considered when budgeting a trip. When an emergency calls for travel, having an account with your savings will lessen the blow of any unexpected expenses.
Shields Against Debt
The average American household has over $7,000 in credit card debt, but emergency funds shouldn’t be used on debt if you’re capable of making timely payments. For unexpected expenses, though, an emergency fund can keep you out of debt and help protect your credit rating.
Whether it’s sudden medical bills, serious home damage or a job loss, you can feel like you’re in over head at a moment’s notice. While debt consolidation services can help remedy these issues after the fact, having extra cash for this very scenario is a proactive measure that allows you to settle the issue before it reaches that point.
Reduces Monthly Expenses
Saving for emergencies can reduce your monthly expenditures. Consider your automotive insurance, health insurance and any other insurance policy you’re currently carrying: The monthly costs of your policies are less with a higher deductible. Having a budget for sudden costs make it possible to safely raise this deductible. For instance, if you’re deductible is set at $500, but you have $5,000 dollars in your savings, you could raise your deductible to $1,000 and lower your monthly payments. Then, if you end up needing to file a claim, your savings will pay for your part.
Most people don’t recognize just how important emergency funds are until they need them. Don’t be the person burdened with stress because they can’t cover unexpected costs. By reading more about budgeting, you can learn to save responsibly to ensure you and your family are prepared for any situation.