Being Prepared for Financial Emergencies is Easier Than It Sounds

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The average household does a lot to prepare. Spare tires, insurance, fire extinguishers, over-the-counter medicine, enough food in the pantry to not have to run to the store every single day, and more. When you think about it, a lot of our spending is dedicated to preparation, even if just for the next day. Yet what many of us don’t prepare for is extra spending on the unexpected.

Do You Need an Emergency Fund?

For most of us, the answer is yes, you absolutely do need an emergency fund, but let’s see who doesn’t. Those individuals who live in a two-income household, are insured to the max, have little to no debt, own a home or make investments, and are comfortable with their profit margin do not need to squirrel away extra cash.

These people don’t need a fund specifically for emergencies because a car repair or medical bill won’t disrupt their financial standing. For the rest of us, we need to set aside money, preferably in a place where it won’t be easy to spend, for unexpected expenses.

These include not only medical bills and auto repairs, but dental emergencies, home and appliance repairs and replacements, and perhaps, if you can swing it, enough to cover a few months of spending should you lose your job.

Also, think about the people who are most important to you. If you live a great distance from your family, you want to have enough money on hand to get back to them if the unexpected happens. If you have children, you need to think about the unexpected things that can happen to them, as they are obviously even less likely to have an emergency fund.

Setting Up Your Emergency Fund

In a pinch, you could secure that personal loan when you apply at, but there are risks involved. High interest rates and the creation of more debt may not be ideal for your situation.

But high interest isn’t universally bad; it can be good news if you’re the one who gains. Ask your bank about setting up a high interest or high yield savings account. These accounts may be subject to minimum balances and other fees.

It is important that you don’t have easy access to this money, especially if it’s going to take you time to build it up. Always bear in mind that that money will be gone forever with just a few poor spending decisions.

And even if you and your loved ones are covered by car insurance or life insurance, you need to think about that fund. Insurance companies are not likely to pay out immediately just because you’re experiencing the emergency; they have their own interests to look out for, so it could be a while before you get paid.

Giving up more of your money each week or month sounds depressing, but it can spare you a lot of anxiety. Best of all, once you have adequate emergency funds, you don’t have to pay into it any longer. You can continue on as usual, secure in the knowledge that you can handle whatever life throws at you next.

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