You already know that having an emergency fund helps you in times of financial desperation. It covers you, for example, if you have a large medical bill, your car’s radiator needs replacing, or if you lose your job. After having an emergency fund for several years, I’ve noticed a few unexpected benefits. These are just a few more reasons to start your emergency fund as soon as possible!
1. You’ll make better career decisions.
If you’re stuck at a job you don’t care for (to say the least), perhaps it’s time to move on. Having an emergency fund up and running will give you the confidence to take appropriate risks.
Making the jump from your day job to your dream job is scary, but it’s even scarier if you don’t have a cushion of dollars in the bank. Should you fail, you’ll want to have some money saved up that you can use for the essentials.
Without an emergency fund, I would have never taken the plunge into full time blogging. There would have just been too much at stake otherwise.
So, what career decisions have you avoided due to lack of funds? How might having an emergency fund allow you to take meaningful, appropriate risks?
2. You’ll be able to maintain a simpler budget.
Bob at ChristianPF has written an excellent article on how to make a budget. In it, he describes “the world’s easiest budget” for those of you who really don’t have the time or patience to make a thorough, complicated budget. Instead of having a couple dozen budgeting categories, you only have a few.
Using this “lazy man’s budget” is safer with an emergency fund. Because you might be forgetting to figure in long term expenses such as vehicle or home repairs, your emergency fund can cover these costs as they pop up.
A former co-worker of mine is currently operating is finances based on this simpler budget, but admits he wouldn’t be able to maintain it without his emergency fund.
Being the financial nerd that I am, I prefer the more thorough, complicated budgeting approach Bob describes later in the article. But regardless of which approach to budgeting you take, you’ll find the emergency fund will come in handy as unexpected bills hit your mailbox.
Have a hunch that your budget doesn’t account for every expense? That’s just one more reason to start an emergency fund.
3. You’ll find the strength to avoid debt.
Having an emergency fund has helped my wife and I avoid the temptation of going back into debt. Why borrow money and risk paying interest when we can “borrow” from our emergency fund at 0% interest for eternity?
Instead of using credit cards, we maintain six months of expenses within an emergency fund and pay for non-decretionary products and services using our 1% to 25% cash back debit card.
Without an emergency fund, it would be all too easy to apply for another credit card and start another downward spiral of debt.
How about you? Do you find yourself using your credit card responsibly, or are you finding that you’re abusing that power? How would having an emergency fund curb your cravings for credit?
Find a surefire way to get out of debt, then actually follow through with your plan! And while you’re at it, prepare to save money for emergencies. The presence of an emergency fund in your life will give you the strength to avoid debt altogether.
Final Thoughts
I’ve lived without an emergency fund, and looking back, it was terribly frightening. Thankfully, I was able to pull myself out of the hole of debt and build up some cash in its place. You can do the same thing. It is possible, and with the Lord’s help, you’ll make it!
It won’t necessarily be easy. It seldom is. But it’s so worth the effort.
How do you expect having an emergency fund will change your life? Do you have one yet? What unexpected benefits are you seeing? Leave a comment!
{ 12 comments… read them below or add one }
John,
Thanks for the post. I think that creativity is another benefit. When you know there is some margin you’re able to think about your choices and options more creatively.
Hello, Our family has an emergency fund set up for a “true emergency’ i.e. job loss, new to us car etc. In addition, we have set up a separate account called a ‘Curve Ball Account’. It’s for those unexpected things that randomly pop up in life i.e. wedding gift, school expense etc. We initially put a set dollar amount into this account; and then at the end of each month we place all the money that we didn’t spend from our budget into this account. We learned about the ‘Curve Ball’ account from a Canadian financial guru Gail Vaz-Oxlade. Having both of these accounts really gives us a peace of mind.
Great article. Keep em coming. I can’t wait until the day I am debt free again and hopefully start saving.
Hi John,
Great post. With your permission I’d like to re-post it on my site. It compliments what I have written on the subject very nicely. Of course you will get full credit and link. No obligation on your part.
Leo Cesna
Managing Director
Relevant Investments, LLC
Thanks for the great insights, John! Valuable reasons for having an emergency fund that aren’t as intuitive as the often stated reasons usually cited.
We’ve had an emergency fund since we got married (5 yrs), but use it strictly for emergencies. By God’s grace we have not had to pull from it, but once or twice. We did though pour A LOT of extra money we were making when we had paid off our mortgage and didn’t have kids yet. We wanted to build it up in case life with kids (me at home) turned out harder financially! We live UNDER our means so that if something does pop up, we have wiggle room. We call it the miscellaneous category. This way our emergency fund stays untouched as much as possible. Great article!
Great post, John! We have found having an emergency fund helps us to head off emergencies. For example, when the car makes a strange noise, we can wait till we get a coupon from the auto shop we frequent and get it taken care of.
That leads to a major benefit of the emergency fund: living our lives with much less stress and worry. The Bible to not worry about tomorrow. That’s a lot easier to achieve if you live below your means and put something away for those things that happen in life. As it also says, it rains on the just and the unjust, and being prepared makes it so much easier to view those events in the proper perspective.
And, although it has nothing to do with the emergency fund per se, we found that having a lifestyle of saving just quietly enabled us to be in a position where we can become more generous when someone in church or our neighborhood runs into an emergency. If you don’t save for yourself you’re never able to help others…
A good place to store emergency funds is in money market accounts because you can earn a little more interest and still have the option to write checks off the account if they are over a certain threshold.
Think that the Great Recession really has taught a lot of people about the importance of having an emergency fund.
I took the course, created a budget & am following it. I have started an emergency fund & already have had a bill come in that I had not planned for. My emergency find has already been a great help.
Peace of mind. That is another benefit of an emergency fund. Like you said, it’s “terribly frightening” knowing you don’t have anything to turn to in case of emergency situations. Having emergency funds will give you the peace of mind thus, allowing you to make wise choices.
Great insight. Our emergency fund is exactly what is allowing my wife to pursue a small business idea of her own. Without that cushion we would be very unlikely to take that risk.
As KC mentioned just above, the peace of mind in knowing that we’re covered in the event of an emergency is invaluable. I’ve been on both sides of the fence and the stress and anxiety of being without can be debilitating!
There is no better safety than having saved money. I’m interested to know how much money you think someone should have in their “emergency fund.” I have always been a proponent of building up 1-2 years of cash reserves, that way if you get fired or make a career change you could potentially survive for 1-2 years.
If you find a place to put your emergency money where it can grow with some decent returns and be completely liquid, then that emergency fund can also act as a small retirement fund as well.
Thanks for the post!