Remember the times when our parents used to tell us, you need to save for the rainy day!
The big question is, “Have you been following that advice?”
Well, sometimes it is easier said than done especially if we have to consider all the other expenses and savings such as retirement and kids education.
But you know what, we really need to include saving for an emergency fund as part of the budget in order to be ready for any unforeseen circumstances beyond our control such as:
Losing Your Job
When get laid-off from your job, it can take a few months before you can find a new one. Just ask the thousands of workers who have just lost their job during the past couple years because of the economic downturn. Some of them are still unemployed while some would be considering a job that pays much less than what they used to make just to be able to put food on the table. And that unemployment benefits, it is not big enough and it does not last long. It is only good for six months (or could be extended to one year depending on how Congress feels). With the recent economic downturn, having an emergency fund allows you to cover all your monthly expenses while searching for a job.
Covering for major repairs
What about when your car breaks down and would require major repairs? Or some major home repairs such as aÂ leaky roof, a plumbing problem, a broken heater or air conditioning. You should have enough funds to cover these unexpected and out-of-the-monthly-budget repairs.
Being disabled or sick
Statistics show that a few people will either get sick or be disabled and be off from work for a few weeks or even a few months at least once in their careers. Disability could be caused by a car accident or any other personal accidents, or healthcare problems such as diseases, heart problems, surgeries, maternity leave for women, etc. The older you are the higher the probability that you will get sick and be off from work for a couple of months. For new moms, some of them could be off from work for at least three months. Unless you have a disability insurance that you purchase separately, not being able to work and generate income could mean a substantial financial lost for the family. Some states pay disability income but the problem is that the benefits would probably be not enough to cover the monthly expenses.
Paying for Huge Medical Expenses
As with the disability stated above, there are some people who might not have medical insurance or have medical insurance but do not have the proper coverage. An emergency fund would at least alleviate the huge medical bills that might pile up. Moreover, when you lose your job, chances are you also lose your employee benefits which include your health insurance. Of course, if your spouse is still employed, you can utilize her insurance, but what about if she’s not or she does not have health insurance coverage herself? Continuing to pay for the health insurance using the COBRA for a year is additional expenses that you did not have to worry about when you are employed. Of course, there is also that option to going the safety net by going to the public health system.
Please tune in tomorrow as I will be posting the second part of this topic, which is tips that you can follow when establishing your emergency fund.