If the pandemic has taught us anything, it’s that life is unpredictable. When it comes to managing your finances, it’s always wise to be cautious and to think about the future. In this guide, we’ll discuss reasons to set up an emergency fund.
Unemployment and loss of income
Unemployment rates have increased in the last year, and many people have experienced an unexpected loss of income. Even if you have a stable job or you run a successful business now, nobody knows what is around the corner. If you were to lose your job, or your income plummeted, would you be able to cope financially? Setting up an emergency fund is a means of bridging gaps if you find yourself without employment, and it can also help to cover living costs and expenses if your income drops. If you have savings, you could also use your money to live off if you’re keen to try something different, for example, going freelance or launching your own business.
Illness
Illnesses and injuries can take their toll on our physical and mental health, as well as our finances. In some cases, people have to give up or cut back on work, and there may also be medical and rehabilitation fees to cover. If you have access to emergency funds, you could use your savings to pay for medical care and cover bills while you’re not working.
Legal issues
Most of us probably assume that we will never need to find money to pay for legal fees. In reality, anyone could find themselves in a situation where they are trying to raise funds to pay an attorney or put towards bail bonds. There are several scenarios that could unfold that would impact your finances. From divorce to car accidents and drug possession, you may find that you need money to ensure you have the best lawyers in your corner.
House and car repairs
For many of us, our homes and cars are the most valuable possessions we own. While we often spend money on insurance policies and maintenance, it’s common to have to pay out for repairs. If you get an unexpected bill from the auto repair shop, or your home is damaged during a storm, for example, having a savings account will help you cover the costs. Even if you are insured, you may have to wait for your payment to clear. Your savings will provide peace of mind and reduce stress in the meantime. If you don’t already have insurance, or your policies are due for renewal, use the web to compare providers, policies, and prices. It’s also wise to invest in insurance if you have a pet.
None of us knows what is going to happen tomorrow, let alone in ten or twenty years. Setting up an emergency fund is beneficial for several reasons. Having access to savings can help to reduce financial pressures, cover unexpected costs and help you stay afloat if your circumstances change. Even if you can only afford to put aside a small amount each month, it’s a great idea to start building your SOS fund.
(Disclaimer: This content is a partnered post. This material is provided as news and general information. It should not be construed as an endorsement of any investment service. The opinions expressed are the personal views and experience of the author, and no recommendation is made.)