You’ll hear many financially-savvy people discuss their ‘emergency fund’. In addition to long-term savings, and maybe even some ‘rainy day’ savings, having an emergency fund can help you stay in control of your financial future.
An emergency fund is there to cover unexpected life expenses, helping you avoid taking out loans or credit. Your emergency fund can provide a cushion if your financial situation changes, easing any concerns you might have about the future.
But what kinds of things should your emergency fund be used for? Here are some ideas that can help ensure your money stays safe until you need it.
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A home emergency
You can never predict something happening to your home. Storms, hurricanes, excess heat – they can all cause damage to your home, leaving you with a very hefty repair bill. While there are different things you can do to protect your home from water damage or a fire, but having some money set aside that you can dip into for these types of emergencies will mean the rest of your finances remain untouched.
Being out of work
There are a lot of reasons you could be out of work. Perhaps you’re a freelancer, you’ve decided it’s time to quit your job, or you’ve lost your job for whatever reason. Being out of work can be frightening, but having an emergency fund will help make sure your expenses are covered while you get back on your feet. Many people say to aim for around six months of expenses, although many people keep adding to their fund once they hit their target.
A divorce
A divorce isn’t something you plan for in life, but if it does happen, having an emergency fund can help you cover the cost. The cost of divorce can be more than you realize between the cost of lawyers, and potential moving costs if you leave your home. Having that cushion will give you one less thing to worry about if your marriage were to end.
Your health
Life is unpredictable, and you can’t predict health problems or injuries that might come your way in the future. Whether you need to pay for some medical expenses or some time off work, having your emergency fund to help with your health can provide a lot of support. It’s important to get the right medical insurance to help you with your costs, but having some extra funds to help with any health-related costs can give you some peace of mind.
Building up an emergency fund can take a lot of time, so it’s important you don’t use it for everything and anything. Deciding what counts as an ‘emergency’ can help you keep your savings safe until you really need them. Whatever the future holds, having that money can give you some extra security, knowing that you can handle anything that comes your way.