Do you have money smart plans for future hardships?
Five reasons you need an emergency savings fund.
It's impossible to anticipate everything life will throw at you. Emergencies often happen when you least expect them, and sometimes when you cannot afford them to happen. When it comes to your finances, you should always be prepared for the unexpected. Financial setbacks can “break the bank” if you don't have the funds to cover them. Experts recommend that you build up to and keep a six-month cash reserve on hand. Five common challenges that can negatively influence your financial situation to include:
- Job loss: Loss of a job can be one of the most prevalent emergencies, by having an emergency fund, you can identify a way to pay your bills until you can establish another source of income.
- Death: The loss of a loved one can influence you both emotionally and financially. When someone close to you dies, you may have to travel to or pay for a funeral, burial service or any other bereavement-related expenses. If it is someone in your immediate family, you may have prepared by purchasing life insurance, but sometimes you may not have enough coverage to pay for all of the income replacement and final expense needs that you may have. Filing insurance claims may take extra time, which can become a challenge.
- Home repairs: In Michigan, you are required to have home insurance to cover the major expenses. But if you have a high deductible or a repair to make on something that isn’t typically covered, could you come up with the cash quickly to cover the expense?
- Car issues or vehicle replacement: Most of us understand that we need to cover the fixed monthly payments for our cars, but do you have enough funds to cover the variable costs including repairs, fuel, basic maintenance, or emergency repairs. A good use of your emergency fund could be those additional necessary costs you have for your vehicle.
- Health issues: A trip to the emergency room could create a serious financial strain for you if you don’t have health insurance, and even if you qualify for short-term disability, you could wind up living on less than your full salary. An emergency fund could help you make it through.
Remember, it’s important to be prepared for any financial emergency and there is quite a bit that you can do to help safeguard your family and finances in the event of the unexpected. By starting an emergency savings fund, you can minimize your risk and maximize your financial success in the event of a crisis.
If you have questions about personal finance, or would like to ask an expert, Michigan State University Extension has access to many resources. Visit the MI Money Health page for more information and answers to your questions including more information about creating a spending plan.