Oh no, you just got into an accident on Tuesday during the rush hour during the rain. Do you have the money you can come up with right now to pay for the accident, could you do it? Although it might not be a greatly rewarding goal or cool, the emergency fund is the foundation of what your entire financial health is built upon. Without it, it could be a matter of time before it comes tumbling down.
Many common unexpected costs come weekly or monthly for an individual. Your car could break down in the middle of the highway, maybe your toilet broke, or many other things that could have happened. Most commonly, people throw these unexpected costs on to their credit card rather than paying out of their emergency funds. That’s to say the same as running but with a backpack full of books. Financing is on a credit card can easily climb not the thousands when people could have easily paid it off in one year.
The lack of an emergency fund costs you more than just money. Many employers only give a set number of sick leaves days, where if you run into a medical emergency it can last up for weeks and leave you no pay. It can be embarrassing to ask others for help to cover rent and basics before you get back up on your feet. Having this emergency fund could potentially save your life. It can give you the confidence knowing you can afford the medical expense or whatever expense appears.
To start your emergency fund, you need a specific amount to work towards. It should typically have from 3 – 6 months of expenses including things that are typically in your budgets like groceries or a gym membership. Organizing your emergency fund away from other goals can help have a clear vision of what can keep your foundation strong. Seriously see what you can cut back on spending and set that money into your emergency fund.
Once you have fortified your foundation, you have the power to help grow your wealth. Financial flexibility is key to keep an individual out of debt and for an individual to have financial freedom. Being aware of what you need and do not need helps you ultimately live a more fulfilling life.
Lucas Zhang was a Finance major at Ohio State University. He writes about finance, mortgages, and technology for Irish Mortgage Brokers.