Why You Need To Build An Emergency Fund

Many people think they don’t need to build an emergency fund or don’t think they’re capable of building one. Whether you’re trying to get out of debt or not, building an emergency fund should be one of your highest priorities, above virtually any other financial goal. Recent economic events and the abysmal job market should make that abundantly clear.

Some people (and I was one of them) think that their jobs are safe. I had a “secure” job, working for a reasonable (albeit slightly under-market) wage. I was integral to the company’s business. And then September 11th hit and business started drying up. It was a matter of days before I found myself out of a job. That was 10 years ago and I’ve since found a much better job, but I’ll never be caught again without an emergency supply of cash.

But a job loss is not the only reason to have emergency cash. Even if you don’t lose your job, it’s always a good idea to have a “cash stash” in case your car breaks down, or your air conditioner quits, or you have an unexpected medical bill. The “gurus” recommend building up a cash reserve of 6 months’ expenses. And that’s great advice! But it’s unfathomable when you’re looking at $20,000 in credit card debt.

Instead of stressing over stockpiling thousands of dollars while trying to keep afloat in a mountain of debt, work towards an emergency fund of $500 to $1000. Most emergency issues that come up only cost a few hundred dollars. Having that much on hand will prevent you from needing to put that unexpected expense on a credit card at 18% or more. Once you’ve finished paying off your debt, then you can worry about building a larger emergency fund.

Build an emergency fund and you can take a lot of the stress out of your life! Discuss your experience in the Get Me Out Of Debt Forum.

Tags: build an emergency fund, building an emergency fund, emergency cash, emergency fund, get me out of debt forum, get out of debt

This entry was posted on August 28, 2011 at 9:39 am and is filed under Debt Elimination, Getting Out Of Debt. You can follow any responses to this entry through the RSS 2.0 feed.