When Do You Need an Emergency Fund?
Emergency funds are for emergencies just as the name suggests. Most of us, at some time or the other do face emergencies. Such situations call for immediate funds. Many find it difficult to get sufficient funds at the right time for various reasons. A fund at such critical times will ease the existing financial burden.
Some believe that an emergency fund is quite unnecessary. Since most people have access to credit, some feel that there is no need for a separate fund when credit lines can help at emergencies. But the fact is that credit lines do not work for all situations, and for everyone.
There are situations when a fund would be quite beneficial when compared to a line of credit. Let’s check various situations that make an emergency fund a necessity.
Loss of Job
Loss of job is a major reason to have an emergency fund. Of course, you can use your credit card for your expenses, but for how long? What about your card bills? What will you do about the interest charges on your expenses?
A credit card will not help much when you lack a job. Though it can be used as an emergency measure, it also incurs more charges, and requires you to make regular payments at a time when there is no income.
This is when a fund would be beneficial. The money you set aside can be used for your monthly expenses without any added interest or other charges. You need not worry about repaying it as it is your money. If you have saved sufficient money in your fund, it will sustain you until you find a job.
One usually plans for any medical treatment or expenses. But what happens when there is a medical emergency? When a family member falls sick suddenly and needs medical care, a credit card can help at the initial stage. You can use the card to get the ailing member hospitalised for emergency treatment. But depending on the situation, you may need funds for continued treatment or therapy.
A credit card cannot meet all those expenses. You also need to think about the added charges related to a card. At critical times, you definitely do not want expenses piling up. A fund would alleviate the situation.
You can use the fund to pay for medical treatment and medication. At times, a fund can also cover costs that come up after being discharged from the hospital.
You may require sudden home repairs due to plumbing problems or any act of nature. A credit card may not cover the cost for home repairs unless you have a high credit limit readily available.
As home repairs are quite expensive, a fund would be more beneficial than a credit card. You can even divide the expenses equally, and pay half through your card and let your fund take care of the rest.
Think of a situation where your car breaks down in an unknown area? What if the nearby repair shop does not accept a credit card? Such situations call for cash at hand, which you can withdraw from your savings account from a nearby ATM.
You can withdraw cash from your credit card as well, but the interest rates on cash withdrawals are quite high. You can eliminate unnecessary expenses with a fund rather than a card.
You may be required to travel on an emergency. It could be to visit your family member, friend, or a relative who stays far from you. Of course, you can pay for airline tickets or travel expenses with your card. But then again, why acquire extra costs in the form of interest?
You can save money that you would normally pay as interest when you let your fund take care of your sudden travel expenses.
Benefits of an Emergency Fund
- Access to instant cash when you need it.
- No terms and conditions for using money from your fund.
- No need to worry about available credit limit.
- Do not pay any interest or other charges to use your fund.
- Get funds to meet bigger expenses such as home repairs.
Emergency Funds are Necessary
An emergency fund will help you overcome an unexpected situation without adding to your debt. So plan and build an emergency fund now. Allow your fund help you during emergencies.