The best tool a person has to make sure that financial issues don’t become financial problems is a time proven and simple one… have an emergency fund.
That alone should be reason enough to halt all other financial actions and create one. But it seems that many people simply do not see the value in them. Well, they are important but be sure that you understand why. Let’s look at some reasons why it’s good to have an emergency fund.
Why it’s Good to Save for an Emergency Fund
The Obvious – You May Need the Money
The singular most important reason to create an emergency fund is the most obvious – you may need the money. Things don’t always work as they are designed to, and the fix for this is usually money. Even when they do, things can and will break.
A great example of this happened to me recently. Suddenly our garage door, a large and heavy double width unit, stopped working. The door went down with no problem, but the garage door refused to open it. As it turned out, one of the springs at the top of the unit simply broke in the middle.
Thanks to our emergency fund, I went online and ordered a replacement set. When they arrived, I replaced both springs (I can do some things myself, you know) and had it back up and operational in a couple hours.
Thanks to the emergency fund having a broken garage door became a non-issue. I didn’t have to use a credit card to bail me out, and I replaced the funds (about $100) on my next paycheck.
Things happen when you own a home, and having an emergency fund is the best way to make sure that things keep working without it being a financial burden.
Available Credit is Not a Substitute for Real Funds
I know some of you may decide that space on a credit card may work as an emergency fund. Let me say right now that this is not the case. First of all, it is an emergency. There could have been an id theft issue, which could lock up your credit sources. Suddenly your emergency fund solution is useless.
When such a crisis happens, don’t be surprised if nobody’s friend Murphy (well known from his infamous Murphy’s Law, which says anything that can go wrong, will) comes calling. Not only have you lost your emergency financial source, but the new problems drain you even quicker. Everything goes from smooth sailing to crisis mode.
But if you have a real emergency fund, you could fix the issues and stay in control until the ID problems sort themselves out. The situation goes from crisis to mere annoyance. (At least financially. ID Theft is always a big problem, and freezing cards is only part of the short term protection that you will need to follow.)
Creating an Emergency Fund Creates the Right Kind of Habits
Perhaps even more important than the emergency fund itself (hard to believe, I know), creating such a fund establishes and enforces the right kind of financial habits. You want to be self-sufficient as much as possible, and having resources at your disposal is the best way to ensure that this happens.
Saving money towards such goals is a process that you should endeavor to become very proficient at. Outside of inheriting a large some or other sudden windfall, properly saving money towards a specific goal is the way that you accomplish things.
Practice makes perfect, so start with the most important one, an emergency fund. Soon you will find saving becomes second nature, and you will even get good at it. Trust me, you will surprise yourself.
As you can see, creating and maintaining an emergency fund should be an important part of your financial strategy. Not only is there in case you need it, but you also develop other important financial skills as part of the process. It may sound like a tired cliche, but in this case, it really is a win-win situation. And we all could use more of those.