Life is full of surprises. While some are pleasant, some can catch you off guard and hit your wallet hard.
Having an emergency fund of cash would make things a lot easier if…
- Your car breaks down in the middle of nowhere on a holiday weekend
- Your washing machine dies, and you’ve got a house full of kids
- Your fish tank breaks while you’ve on vacation and floods the entire floor
- You lose your job or experience a medical emergency
- A family member is in trouble, and you need to hop on the next plane…no matter how much it costs
These are just a few examples. Life can change in an instant. Sooner or later, you’re probably going to find yourself in a sticky situation where money can make a big difference.
Having an emergency fund isn’t just a good idea—it’s a financial lifeline. Eventually, you’re probably going to need it.
Here are seven could-happen-to-you reasons to have an emergency fund.
1. Job Loss
Imagine you’re comfortably settled in your job, when suddenly, the company announces layoffs. This scenario is more common than you might like to think.
On average, people who lose their job are unemployed for about 22 weeks, before they find another one.(1)
Do you have enough money in the bank to pay your bills and cover expenses for 5 to 6 months?
You know…
- Mortgage/rent
- Utilities
- Food
- Medications
- Insurance
- Phone/Internet
- Child care
- Debt
An emergency fund can cover your expenses during this period, giving you the breathing room to find a new job without the added stress of immediate financial pressure.
TIP: Take a closer look at your monthly expenses. Do you have enough money in your emergency fund to weather a job loss until you find a new one? If you don’t, now is always the best time to start saving.
2. Medical Emergencies
Health issues can arise out of the blue, regardless of how healthy you are.
For example…
Heart disease and stroke are among the top 5 leading causes of death in the United States, and often occur without warning.
- Stroke. Every 40 seconds someone in the U.S. has a stroke. About every four minutes, someone dies from a stroke.(2)
- Heart attack. Every 40 seconds someone has a heart attack. Every 33 seconds, someone dies from a heart attack.(3)
While you might survive a stroke or heart attack, you could spend a lot of time in the hospital and recovery could take months or longer. And there’s many other medical emergencies that could hit you hard.
Even with good health insurance, out-of-pocket expenses can be significant:
- The average deductible for employer-sponsored health plans was about $1,655 for single coverage in 2023.(4)
While you might not have to drop $1,600 from a hospital bed, you’ll need to be able to pay your deductible so insurance will pay the rest of your bill when you do need medical care.
TIP: An emergency fund can help cover these unexpected costs, ensuring you can focus on recovery instead of worrying about bills. Do you have enough cash on hand to meet your deductible?
3. Home Repairs
In the movie The Money Pit, everything you can think of goes wrong. The staircase falls apart. There’s an electrical fire in the kitchen. Dark sludge pours out of the bathtub faucet. A raccoon is living in the walls. The chimney collapses. And the cost to fix the house keeps growing.
Hopefully, you’re not living in a money pit. Homeownership is rewarding, but it comes with its share of unexpected expenses.
Think about the cost of a broken furnace in the middle of winter or a leaky roof during a rainy season. These repairs can’t wait and often come with hefty price tags.
In the U.S. homeowners spend an average of $1,953 on emergency or unexpected home repairs, and about $6,000 on standard maintenance and repairs.(5)
Having an emergency fund set aside means you’re prepared to handle a surprise home repair without having to dip into your savings or rely on credit.
4. Car Trouble
If you live in an urban area with public transportation or have a fat budget for taxis and ride-share services, you might be able to live without a car.
However, cars are essential for most adults. About 92 percent of U.S. households have at least one car.(6)
While it’s convenient to be able to hop in your car and go, cars are also prone to breaking down and require regular maintenance.
An emergency fund can give you peace of mind when need money to:
- Replace a dead battery
- Repair a flat tire
- Fix electrical problems
- Address serious engine issues
- Buy new tires
- Get an oil change
According to AAA, most drivers spend about $800 a year on car maintenance and repairs.(7)
5. Family Emergencies
Whether it’s helping out with a relative’s sudden medical expenses, covering unexpected travel costs for a family emergency, or providing temporary financial support, these situations often require immediate funds.
And chances are pretty good it’s not a matter of if you’ll experience a family emergency, but when.
An emergency fund allows you to be there for your loved ones without compromising your financial stability.
6. Unexpected Travel
Not all unexpected events are emergencies, but they can still require quick cash, especially if you need to travel.
- Maybe you win a last-minute opportunity to attend a significant event, or perhaps you find an incredible travel deal that you can’t pass up.
- Maybe you need to hop on a plane with just a day or two of notice.
Right now, airline prices are up 25 percent. And if that wasn’t a big enough hit, last-minute airline tickets are even more expensive.(8)
Having an emergency fund means you can book a flight, plan a trip, or travel to see a family member or friend with less stress.
7. Peace of Mind
Beyond all the practical reasons, an emergency fund provides something priceless: peace of mind.
Knowing that you have a financial cushion can reduce stress and help you sleep better at night. You can navigate life’s uncertainties with confidence, knowing you’re prepared for whatever comes your way.
How Much Should You Save?
So, how much should you have in your emergency fund?
Financial experts typically recommend having three to six months’ worth of living expenses saved up.(9)
- However, the exact amount can vary based on your personal circumstances, such as job stability and health condition.
- Start with a goal that feels achievable and gradually build it up.
Here’s how…
- Set a savings goal: Determine how much you need to save and break it down into monthly goals.
- Automate your savings: Set up automatic transfers to your emergency fund account to ensure you save money every month.
Cut unnecessary expenses. Review your budget and identify areas where you can cut back.
If you get a lump sum of money…put bonuses, tax refunds, or any unexpected income directly into your emergency fund.
An emergency fund is a critical part of a healthy financial plan. It’s not about expecting the worst, but rather being prepared for whatever life throws your way.
By taking steps to build and maintain an emergency fund, you can protect yourself and your loved ones from financial stress.
Sources
- Bureau of Labor Statistics. (2024). Unemployed persons by duration of unemployment. From: https://www.bls.gov/news.release/empsit.t12.htm
- Centers for Disease Control and Prevention. (2024). Stroke facts. From: https://www.cdc.gov/stroke/data-research/facts-stats/index.html
- Centers for Disease Control and Prevention. (2024). Heart disease facts. From: https://www.cdc.gov/heart-disease/data-research/facts-stats/index.html
- Kaiser Family Foundation. (2023). 2023 Employer Health Benefits Survey. From: https://www.kff.org/health-costs/report/2023-employer-health-benefits-survey/
- O’Brien, S. Homeowners spent up to $6,000 on average on repairs and maintenance. CNBC. From: https://www.cnbc.com/2023/01/05/homeowners-spent-up-to-6000-average-on-repairs-maintenance-in-2022.html
- Valentine, A. (2024). Car ownership statistics 2024. Forbes. From: https://www.forbes.com/advisor/car-insurance/car-ownership-statistics/
- AAA. (2024). What does it cost to own and operate a car? From: https://www.aaa.com/autorepair/articles/What-Does-It-Cost-To-Own-And-Operate-A-Car
- Holzhauer, B. (2024). Airline ticket prices are up 25%, outpacing inflation. CNBC. From: https://www.cnbc.com/select/airline-ticket-prices-are-up-25-percent-why-and-how-to-save/
- Burnette, M. (2023). Emergency Fund Calculator: How Much Will Protect You. Nerd Wallet. From: https://www.nerdwallet.com/article/banking/emergency-fund-calculator