It’s hard to predict when an unexpected cost is going to pop up without warning. Whether it’s a home repair or a surprise medical bill it’s always better to be prepared ahead of time.
There are a number of ways an emergency fund can help you financially. Here are just a few that are important for every consumer.
Prevent Financial Stress
Dealing with money can be stressful especially if you are in a situation when you don’t have enough. To enjoy peace of mind when it comes to your finances it’s important to save 3 to 6 months’ worth of living expenses. It will help you be prepared for a temporary job loss or decrease in income without feeling added pressure or stress.
The best way to start an emergency fund and reduce stress is by changing your spending habits. Before making a purchase ask yourself if what you’re buying is really necessary. Reducing the amount of money you spend on non-essential items, and putting it in an emergency fund will help relieve stress in the future.
Improve Your Credit Score
At some point in life you will likely acquire some form of debt, and that’s not a bad thing. Certain debts like a mortgage, car loan, or student loan can dramatically improve our lives in the long term.
An emergency fund can help reduce your chances of adding on more debt, which will improve your credit score. By using an emergency fund you avoid the temptation of using a credit card that could negatively affect your credit.
Become Financially Independent
Another important factor that an emergency fund provides is financial independence. It can prevent you from relying on friends or family to borrow money in the case of an emergency.
You don’t have to scramble to come up with money when you’ve got an emergency fund available. Maintaining an emergency fund makes you a more self-sufficient person.
If you’re not sure your fund is big enough it never hurts to keep adding money to it.
The best place to maintain an emergency fund is in an account that is out of sight. A separate savings account is a great place for it. You don’t want it to be easy to access because then you are less likely to spend it. Keeping it in a separate account also makes it easier to know how much or how much more you need to add to it.
If you already have an emergency fund saved for the future that’s great. If you don’t it’s never too late to start one. As you can see there are many ways one can make life a little easier.