An emergency fund is a stash of savings that you can use immediately to handle a surprise cost. It could be something like car trouble, a plumbing problem or an unplanned trip to the dentist. Essentially, it keeps you prepared for the unexpected.
If you don’t have one, you’re not alone. Lots of people are in the same boat. Research shows that almost half of Americans wouldn’t be able to handle a $1000 emergency cost by using their savings alone. They would have to use an alternative method to get it resolved or leave the problem untouched.
What Can You Do Right Now?
If you don’t have an emergency fund at the moment, a line of credit can be an effective safety net for you. It’s easier to manage a line of credit than a high-interest loan, where payments can quickly balloon and get out of hand. Take a look at these line of credit rates and see if you could manage repayments without disrupting your monthly budget.
Another benefit that comes with a line of credit is that it helps you build your credit history. By diversifying your credit and managing payments, you could give your credit score a good boost.
Why Do You Need an Emergency Fund?
The clearest motivation for an emergency fund is to be able to pay for emergency expenses. But that’s not the only thing that this fund brings to the table. Here are some other benefits of having this type of financial safety net:
- It lets you deal with emergencies right away. You don’t have to wait for a loan approval. You don’t have to beg your friend for help and wait for them to move money around. You can spot the problem and deal with it immediately. There’s no time wasted.
- It helps you avoid risky financial moves like maxing out your credit card, pawning off a precious item or taking on a high-interest loan that you can’t afford.
- It offers a sense of security. A simple back-up plan can help relieve some of your financial stress or general anxiety. You don’t have to worry about small problems cropping up because you know that you’re ready to resolve them.
How Do You Get Started?
It depends on how much you want to save up. If you want to start small, take a jar or an envelope and put a little bit of cash inside every week. In a few months, you’ll have a stash of money that you can use in an emergency. You just have to fight the temptation to open it for non-emergencies.
If you want to aim higher, you should start a monthly budget to help you cut costs and set aside more savings. Then, open up a savings account. Push all of those additional funds inside of the account. Repeat this process every month. Soon enough, you’ll have a substantial safety net.
It’s not too late to think about emergency savings. Set up your back-up plans now so that you’re never caught by surprise in the future.