2020 was a tough year for just about everyone. Many people lost jobs and faced a great deal of financial uncertainty. Even before the recession began, a significant portion of the population was living paycheck to paycheck with little to no savings. As long as a stable job was to be had, it was easy to put off building up an emergency fund until a later date. Some important benefits come from having an emergency fund though.
Peace of Mind
Living paycheck to paycheck is incredibly stressful and can take a serious toll on multiple aspects of your life. Financial difficulties are responsible for 41% of divorces. Having an emergency fund saved up can help reduce the stress associated with personal and family finances. It gives you peace of mind, even if you never have to use it. Considering all the negative effects stress can have on your health and wellbeing, reducing the chronic financial stress you could be experiencing is only going to do good things for you.
Protect Your Credit
Your credit score has an impact on most of the major financial moves you’ll make in your life. It’s important to take steps to protect your credit score, but that can be tough if you find yourself in the middle of an expensive emergency and in need of funds. You can use personal loans for any number of emergency expenses. This can be incredibly helpful in a pinch, but if you have an emergency fund saved up you can avoid going into as much debt as you otherwise would, or perhaps even altogether. You’ll be in a better position to recover financially if you don’t have to go into debt.
Paying for Emergencies
The whole point of having an emergency fund is so that you have the money to cover emergency expenses. Of course, the hope is that you don’t find yourself in an emergency, but if you do, having an emergency fund that you can pull from to pay for things is invaluable. The typical recommendation is to have 3-6 months’ worth of living expenses saved up. That may seem like a lot to save up. Start with saving up your first $1,000 and go from there.
Having an emergency fund built up has multiple benefits and advantages. It offers peace of mind, can help protect your credit, and can be a lifesaver when it comes to finding a way to pay for emergencies. Building up enough of an emergency fund takes a lot of time and discipline. If you haven’t started already, start now so you can get as much saved up as possible before you end up needing it.
For more help planning your retirement, make an appointment to meet with Mike today!
