The financially prudent got a twang of anxiety reading that title. I know this because I got it while writing it. Just to get the answer out of the way: yes, yes, yes, please promise me you have an emergency fund. Don’t have one? Now who’s starting to get anxious? Don’t fret, let’s walk through this together.
Why Wouldn’t I Set Up and Emergency Fund?
Honestly, there are so many more fun reasons to not have an emergency fund than there are fun reasons to have one. And emergency fund is just that, for emergencies. It is recommended to have at least 3 to 6 months of living expenses saved up should something bad happen. People don’t want to think about bad things that they can’t control happening to them, so an emergency fund is quickly pushed off for fun activities. This makes a lot of sense, why should I worry about a medical emergency when I’m in perfect health? Why do I need to save money for something that might not happen when I can spend it today on a new television or a down payment on a fancy car?
600 Reasons Why
After insurance, the average surprise medical bill in the United States is $600. That may not seem too terrible, but this is after insurance has paid the majority of it. Many of these surprise medical bills are in the thousands of dollars (also after insurance). 40% of American households said that they could not cover a surprise $600 bill without taking on debt by borrowing money. Borrowing money incurs interest, which in turn makes it harder to get out of debt. This is why a surprise medical bill could send a family without an emergency fund into financial trouble, or even ruin.
How Do I Avoid This?
A surprise bill is just that, it’s a surprise. Even if you’re the healthiest person ever, things happen. However, you’ve got time on your side. Do you need to dump your stock and sell your house in order to have 4 to 6 months of living expenses on hand? No. An emergency fund is for an emergency, and those don’t typically happen. Start putting away a small amount of each paycheck, and before you know it you’ve got yourself a financial cushion. Most employers allow for you to manage direct deposit accounts from your paycheck. Simply connect a savings account and put a portion of your paycheck into it, where you will keep it in perfectly liquid cash.
Is There Any Added Benefit of an Emergency Fund?
So, dodging financial ruin isn’t enough for you? You need a final perk that’ll convince you to set up an emergency fund?
Fine, here’s the biggest benefit of an emergency fund: freedom.
Now that may seem rather anticlimactic, but I promise you the more you have stored away the freer you will feel. Maybe you’re more willing to quit that job you hate, maybe you can make a down payment on the house of your dreams, or maybe you can worry just a little bit less and spend that time with your family. Either way, an emergency fund is worth it.
**Disclaimer: The Tempered Bull is committed to enhancing the finance wellbeing of our readers; however, these articles should not be your only resource. The suggestions made here are meant to be taken in conjunction with professional financial assistance. We are not financial professionals, just regular people with a passion for sharing our experience. The Tempered Bull does not have any private knowledge about the companies we discuss, and The Tempered Bull and its associates do not benefit from your purchase or sale of any equites. The Tempered Bull has a disclosure policy.