Why You Need an Emergency Fund and How to Get One
Four weeks before Christmas, Mitch and Jenn had a string of bad luck. Mitch broke his leg in a skiing accident. Jenn’s car broke down, requiring major repairs. And the aged roof of their home decided to fail right in the midst of a major storm.
The financial and emotional toll these events took on them was huge but nothing like it might have been if they hadn’t been diligently building a contingency fund, more commonly known as an emergency fund.
Mitch’s health insurance is covering most of the costs of his surgery and follow-up therapy. Still, they had to come up with more than $2,400 to cover his deductible, copays and prescriptions. The car repairs were just shy of $2,700.
It was the roof that really threw them for a loop. The estimate to repair it — with no assurance that said repairs would last for longer than a few months — was $750. A new roof estimate came in at $12,000.
Suddenly, their healthy $18,000 contingency fund didn’t look quite as massive.
Mitch and Jenn are crash saving so that when they replace the roof this summer, the cost will not deplete their fund. And they’re committed to continue saving like that to restore it back to $18,000 by year’s end.
I know what many readers are thinking: Sure, Mitch and Jenn are wealthy, so of course they have money to save. They’re lucky because they have two incomes, and we have only one. Must be nice, but what about those of us who are unemployed, unhealthy, deeply in debt or (insert excuse of choice here)?
As long as you see building your contingency fund as optional, there will always be something more pressing that takes priority.
Need specific reasons to grow your CF? Here they are. Learn them well, and then believe with all your heart that something on this list is coming your way.
Chronic illness. When you or someone in your family is really sick or involved in an accident or contracts a horrible disease, you need to be prepared. Insurance only goes so far these days.
The dreaded pink slip. Getting a pink slip is never fun, and when it comes out of the blue with no notice, it will be shocking. You need a way to pay your bills until you get another job.
A distant job. Your next job may be four states away. Moving will not be cheap.
Serious breakdown. If you think car maintenance is expensive, wait until you see the cost of repairs.
Disaster. A broken furnace, leaking roof, natural disaster — who knows what form this type of emergency will take?
Final call. Who wants to plan ahead for mourning? Not me. But knowing I have money stashed in my CF for when bereavement requires travel means that I don’t have to think about it now. I’m prepared.
I understand these are tough times and it’s challenging to find money to save. But do you really have any options? If your current lifestyle is sucking up every last dollar of your income, thereby putting you and your family at risk, it’s time to make changes.
Start small. While you need a big, healthy contingency fund (equal to at least six months’ living expenses), do not focus on that big number. Start by saving $500. Then reset your goal to $1,000. Now you’re on your way. You’re catching the savings bug. Soon you will reach $2,500. Then $5,000 will be in view.
That’s the way to do it. But you’ll never reach your goal until you get that first $500 out of reach and safely tucked away in a savings account.