Personal finance

The importance of having an emergency fund

If there is anything to rely on in life, it is that the unexpected happens far more often than we would like it to, that it invariably has worrying consequences and it nearly always costs you money. An emergency fund is generally regarded as having three to six months' worth of "expenses money" locked away, metaphorically in a bottom drawer but actually in an interest-bearing savings account which permits immediate withdrawals.

Let's have a think about some of the many circumstances where such a fund would be the financial equivalent of manna from heaven.

  1. Loss of employment

It always takes time to find suitable work if for whatever reason you fund yourself walking out of the office or factory not knowing when the next pay check was going to arrive. Having the emergency fund gives you time to find your bearings, ensures that you will be paying bills on time and even allows you to be that much more selective - going for the right job rather than the first one that comes along.

  1. From employer to entrepreneur

Suppose that even if your job was not at risk, you had decided that the time had come to open the flap of the tent and walk out on your own by starting your own business. Whilst your "bottom drawer" money may be insufficient as seed corn capital, it does give you the breathing space to get the new show on the road and again takes away pressure when you are able to keep paying bills on time.

  1. An unexpected pregnancy

Babies are lovely but they cost money, not forgetting that in households where there are two wage earners there is bound to be a strain on the funds. What a relief to have a "bottom drawer" to erase the delivery day worries.

  1. Accidental damage

This sounds horrific and no one wants to think about it but suppose someone gets hit by a car and might be bedridden and unable to work for several months. How fortunate to have funds to turn to that will ensure that all flows well in the household and that you are paying bills on time.

  1. Problem with the car

Driving alone peacefully, minding your own business and all of a sudden there is smoke coming out of the engine and you are landed with a bill that really knocks you back. For the sensible people with an emergency fund, the money will be there to meet this unexpected and unwelcome emergency.

  1. Urgent travel

Sad news reaches you from afar of the passing away of a dearly loved one and you feel quite rightly that you need to be there. This is going to involve airfares, possibly hotel and restaurant bills and conceivably expensive absences from work.

Finally if you are worried about getting hold of the cash for the emergency fund, don't forget car title loans can get you up to $20,000 within an hour.

Do you have any questions? Please ask.