Why You Need An Emergency Fund (And How To Invest It)

The larger your family is in terms of dependents, including aging parents, the more money you should have on hand. You will need an ample cash amount when dealing with young children and the elderly which may be subject to more unknown medical circumstances than a young couple.

10 Reasons Why You Need An Emergency Fund

1. Certain Events May Result In Higher Costs Are: – Dental bills for root canal surgery; – Emergency pet care; – Home repairs like your roof from a sudden storm; – Car repairs after running into a deer; – Emergency room visits; – Significant health expense for surgery, and – Job loss.

2. Avoid Adding Debt When faced with unexpected expenses, tapping your emergency fund is much more cost-efficient. Personal loans can get expensive unless you have a 700+ credit score. If you regularly pay your monthly credit card balance in full, then putting unforeseen expenses on your card may make sense.

3. Insurance Doesn’t Cover Everything For some unexpected events, you may assume insurance will cover those costs, such as medical expenses.   However, insurance may not cover your whole bill, and there may be a deductible amount you have to pay. Insurance is always great to have, but you may be surprised about the additional expenses you may incur.

4. You Don’t Want To Sell Something You Want Even if you are someone with many assets, like investment and retirement accounts, land, jewelry, art, and antiques, you may think you don’t need to have a separate cash account.

5. Avoid Withdrawing Money From 529 Savings And Retirement Accounts Don’t be tempted to use savings for college tuition and retirement for your emergency. These accounts are for specific purposes and beneficial for their compounding growth and tax-deferred nature.

6. Borrowing From Your 401K Retirement Account Should Be The Last Resort If you don’t have an emergency fund, you may consider borrowing against your employer-sponsored 401K account. Most employers do allow this.

7. If You Cannot Get Unemployment Benefits or Have Volatile Income If you are self-employed, an independent contractor, or a freelancer, you will not be entitled to unemployment benefits. You may also be subject to irregular earnings, which requires good savings habits for the months when your cash flows dip.

8. Job Loss The loss of a job within a household can be detrimental. Attaining a new position is dependent on the economy, time of year, the person’s qualifications, experience, demand for his or her skills, potential pay cut, a geographic move (which adds more costs), and age factors.

9. Financial Support For Aging Parents As our parents get older, we want to do as much as possible for them. Their medical conditions may worsen unexpectedly. An emergency fund may give us access to funds to help them financially.

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