Read any financial advice article (including mine) and you’ll be told you need an emergency fund. Usually this is attached to some number (like 3- or 6-months’ salary or expenses) that will make you feel hopeless that you’ll ever achieve it. I’m here to say that even having $1,000 or $5,00 stashed is going to help out a lot, and help you avoid a lot of bad results. And, if you don’t have an emergency fund you’ll never get out or say out of debt: we don’t know what the emergency will be, but unexpected things occur regularly. Having some emergency is definitely predictable. Here are a few reasons you need something.
- You lose your job. This is the first thing everyone thinks of—and probably requires the largest emergency fund, since being without any income (even if you collect unemployment) is pretty scary and can last more than a few months.
- You have a health issue and have to cover your deductible and out of pocket expenses. Depending on when this occurs in the year, you may need to cover more than one year’s deductible. Let’s say you get sick in November, but it lasts into February—2 years’ worth of deductibles and out-of-pocket.
- You slide in the snow, doing damage to your car (bad), or to someone else’s car (worse) or both (worst of all). Neither of these expenses is worth claiming to your insurance company know, but given the electronics in cars nowadays, one came up to $700, and the not very happy person whose care you hit cost $500. Damages to your home and car that are near the deductible are probably not worth claiming (because they’ll raise your rates or drop you.)
- You have a fire. Even if you have homeowner’s or renter’s insurance, moving immediately to a hotel, eating out exclusively for any time period, or even couch surfing at a friend’s is going to cost something.
- You have a fire and it only wrecks the kitchen. You’ll immediately incur higher food costs.
- Your refrigerator, computer, or other appliance suddenly goes kaput.
- If you’re a homeowner, the list is almost infinite: tree falls, sewer line gets clogged, hot water heater’s bottom drops out, furnace or air conditioning die, dog destroys couch or bed, cat decides they prefer your wall to wall carpet to their cat pan and you don’t discover it for a while…
- Pets need veterinary care.
- Someone dies and you have to travel to the funeral, or you have to bury someone.
- You lose your job and have to buy temporary health insurance.
- You lose your job and need assistance (coach, networking groups, lunches out, etc.) in helping you find a new one.
- A loved one needs immediate residential care or home assistance not covered by insurance.
- You or your child need a divorce.
- You need to hire a lawyer for any reason.
- Your child needs special testing or tutoring not covered by insurance or the school.
- You have to buy a car, unexpectedly.
- You have to move.
- You need dental work, glasses, or a hearing aid (which are not usually covered by insurance). Check your insurance, especially if you have children who need any of these.
- You have an accident or illness that requires you to pay others for services you routinely did for yourself (grocery shopping, rides, home maintenance and cleaning).
- You work for the federal government.