3 Unexpected Benefits of an Emergency Fund
by John Frainee on February 26, 2013
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-discretionary 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.
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?