Emergency Funds: Why You Should Have One

Kristina Kraus
Greater Nevada Credit Union
Most days are pretty routine, though every now and again life throws us a curveball. And those curveballs usually come with a cost; that’s why having an emergency fund is so important. Let’s take a look at some things that can happen where some extra cash, as well as extra protection, can soften the blow.
 
Job Loss. Losing your job when it’s your main source of income is probably one of the most stressful financial situations there are. Having money set aside to pay your expenses until you find another job can make the experience way more manageable. Take a look at your monthly expenses and aim for building an emergency fund that would cover at least six months of those if you became unemployed. That may seem like a lot, though between reducing your expenses and consolidating payments, while automating your savings, you could reach that goal sooner than you think. You can also ask your lender about debt protection in case of job loss, so that your loans are covered.

Home Repairs. Any number of things can happen when you’re a homeowner: plumbing issues, leaky roof, electrical repairs, broken appliances…the list can go on and on. One rule of thumb is to set aside 1 percent of the cost of your home for yearly maintenance. You may also want to revisit your home insurance policy, to make sure you have good coverage at a good price.

Unexpected Travel. Air fare isn’t cheap, especially when you need it for unplanned trips like attending a good friend’s surprise wedding or the funeral of a loved one.  In some cases, you can get discounted “bereavement” fares, though even then you’ll probably spend at least several hundred dollars for travel. An emergency fund can help cover those costs, without resorting to spending outside of your budget.

Health Care. We all know that healthcare is expensive, no matter what type of insurance policy you may have. For instance, the most commonly broken bone is the collarbone, which for surgery alone ranges between $11,000 and $17,000. Even with insurance, a broken bone or major surgery could require you pay a deductible of $3,000 or more.

Car Repairs. If you drive a new car, you’re probably less concerned about repairs during your warranty period. However, as cars age, repairs whether minor or major are inevitable and not all are covered by warranties or insurance.  Whether your vehicle is new or older, you may also want to consider GAP Coverage or Major Mechanical Protection, to cover out of pocket expenses.

Pet Injury. Our pets are family members too and with that unconditional devotion come expenses, especially veterinary care. Some people purchase pet insurance to make sure those expenses don’t lead to hard decisions. However, setting aside funds for your pet’s routine care is imperative to keeping him or her as healthy as possible so that major medical expenses can be avoided. 

How to Build an Emergency Fund

Building your fund doesn’t have to be complicated. It just takes commitment and time. Here are the easiest ways to get your fund started.
  1. Add Up Current Expenses. Take a look at your current budget (or be sure to make a budget) and evaluate your spending habits. Cut back where you can to use those savings toward your emergency fund.  You can also establish a savings goal based on how much you might need to pay your expenses if the unexpected happens.
  2. Set Up a Separate Account. Set up an emergency fund savings account that you won’t be tempted to touch for other reasons. Then automate your savings into that account based on how much extra you have after revisiting your budget. For instance, check out our Automate Your Savings tab on our Share Savings page for more information on ways you can easily build your savings.
  3. Use Cash Not Credit. Reduce your debt by reducing those larger impulse buys that are so easy to make on credit. Use your debit card instead. It’s safer and more convenient than cash, and you’ll only spend what you can actually afford—without dipping into your emergency fund of course! Plus, keeping your credit charges down could also help your credit score in the long run, making it easier and cheaper for you to borrow money later. 
9/04/15