An emergency fund is a savings account explicitly earmarked for emergency expenses. Thinking of it in those terms might make it easier to maintain or it could prevent you from starting one in the first place. If you’re on the fence about starting one or looking for an alternative to emergency loans, here are 5 reasons why you should consider starting an emergency fund.
1. Life is unpredictable
Just when you think you’re prepared for anything, the unexpected happens. Welcome to life. It’s an unpredictable, wild roller-coaster ride where anything can happen. Putting a little money away each pay period can position you to roll with the changes when they present themselves. That doesn’t always mean bad things are coming but being prepared is never a bad idea.
2. Inflation is on the rise
You’re probably sick of hearing it. Inflation has been rising at a torrid pace since 2022, and it’s not expected to stop any time soon. At the same time, everyone’s wages aren’t increasing to meet the rising cost of goods. That means you could get stuck with some bills you can’t afford to pay in the coming months. Put some cash aside in an emergency fund to prepare for that.
3. Cars need repairs
If you’re a car owner, a big concern can be the cost of repairs, big or small. While bringing your car in for regular tune-ups and oil changes are great preventive measures, big ticket items such as transmission repair, and shocks and strut replacements are pretty much unavoidable the older your car gets. If you still owe money on your vehicle, it may be worth considering refinancing your auto loan to lower your monthly payment and free up more cash for repairs.
4. Job training might be necessary
Adding more skills to your knowledge toolkit is always a good idea when looking to increase your salary. Having a plan for professional development can make you a more attractive candidate for prospective employers or make you a more valuable asset to your current employer. You may need to take continuing education courses to get there, so it may be worth it to place extra cash in an emergency fund to cover the cost.
5. Emergency funds are savings accounts
Change your perception. Emergency funds are savings accounts. And since savings are an important part of retirement and financial planning, it’s better to start saving sooner rather than later. Get in the habit of putting a percentage of your paycheck aside each month, and you’ll be able to watch the account grow.
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