Feb 22, 2023 04:10 PM EST
Why Consumers Need Emergency Funds for Their Unexpected Expenses
The unexpected happens constantly. You might step outside the house and twist your ankle. Your kid's school might call and say they seem very ill. You never know what each new day brings.
Even if you budget, you might run into trouble if something unexpected happens and you have no money in savings. About one in four consumers has no emergency savings in America.
That's not surprising, but it's sobering. It means that if something goes wrong, these individuals have no nest egg they can dip into to pay off the bill. They will rack up debt because they can't cover the expense.
Let's discuss some specific reasons why consumers need emergency funds right now.
Emergency Medical Expenses
Emergency medical expenses remain a key reason why consumers need emergency funds. Maybe you have healthcare through your job. The plan you have might not cover everything, though. Any coverage beats none, but some have very high copays.
An insurance company might turn down your claim for some reason as well. They are not above doing that if they think they can get away with it.
Without a nest egg, you can't pay your medical bills. Maybe you owe the hospital, a physical therapy center, a clinic, or a private practice. You may owe several different medical entities.
Whatever the case, if you can't pay that money back, the medical entity might give a collection agency your information. At that point, your life becomes intolerable. The collection agency can hound you all the time. They will call your house, show up at all hours, and hassle you till you find some workable solution.
Sometimes, a family member dies. You may expect it, or perhaps it happens suddenly. If you know that individual wanted a funeral service and a casket, you feel you must do that for them.
With their body waiting, you can't put off these expenses. You must move forward now, and if you have no money, the funeral home and other entities involved may not carry out your wishes.
If you can't afford the funeral service, the casket, and various other fees, the morgue may simply cremate the body. That might upset you and the other family members very much. Now, you won't have a grave you can visit.
Even cremation costs aren't free, and if you have no savings at all, scraping together the cremation money might prove difficult. Having at least a little savings can help you out tremendously in these instances.
Car repairs rank high on the emergency expenses list. If you buy a brand-new car, it comes with warranties. Most new vehicles come with several.
These warranties cover you for the next several years. If anything happens with the car, you can take it to the dealership where you bought it, and the employees there can help you.
If you buy a certified pre-owned car, you won't get the same warranties, but you might get one that lasts a year. That's better than nothing.
If you buy a used car, though, you can run a Carfax report on it and learn about its history, but you never know how it will run once you drive it off the lot. It might seem fine during the test drive, and perhaps it stays basically okay for months or years after that. If it does not have many miles on it and you don't see much wear and tear, you might use it for a long time with no issues.
Every car breaks down eventually, though. Maybe you'll have a minor issue, but perhaps you need a new brake line or a new engine. That's easily several thousand dollars.
If you have no emergency fund, you can't get your car working again. If that happens, maybe you can't get to work, or you must take public transportation.
You must leave the house far earlier in the morning, or you might catch rides with family members. Once again, having no emergency fund has blindsided you and dramatically altered your life.
How Can You Start an Emergency Fund?
Since starting an emergency fund remains so crucial, you must try creating one before disaster strikes and not after. If you owe money, it's not easy. All the cash you make probably goes toward paying it back.
If you can ask for a raise at your work, do that. If you can find a side hustle that you might do during your downtime, that sometimes works too. Some people collect cans and turn them in for money. Others refurbish antiques they find at Goodwill stores and sell them online.
You might also polish up your resume and look for other jobs in your field. Maybe you'll find something like your current work, but it pays better.
Any money you can set aside helps. If you've got only a few hundred dollars, you can use that as a bulwark against unexpected expenses.
Do You Have Any Other Options?
If the suggestions we mentioned aren't helping you, you might also take any windfall money you get and start an emergency fund with that. If you get cash from an income tax return, put that in the bank and use that as your nest egg. If you put it in a savings account, it can even make you a little interest while you sit on it.
If you get money from a relative for any reason, you can use that money as your emergency fund. If you win some money off a scratch-off ticket, start a savings account with that. Any time you have extra money, and you're thinking about buying something frivolous, reconsider and save that cash.
Having just a little in the bank for emergencies changes your entire outlook. You won't worry so much about every strange noise the car makes. In time, if you're lucky and no disasters occur, you can continue building that fund into a more significant amount.
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