“Emergency” and “fund” are the new buzz words of any financial advice. You have heard it and have been told many times to have an emergency fund. How much you should save is typically dependent on who you ask. Some say have at least 3 months, others say have at least 6 months while others have recommended up to a year of your monthly cost of living saved. Whatever the amount you have settled on trying to save, start saving now. On the journey to financial independence, there are many benefits of having an emergency fund.
Financial Stress
Financial stress is not only one of the leading causes of divorce, but also stress and all related pathologies. This comes as no surprise in view of recent reports. Survey after survey notes that we are not saving enough for retirement. There are monthly reports noting that most cannot afford a $500 emergency without going into debt. Additionally, the average American has over $38,000 in debt. With regard to student loans, in the US, student loans are now over $1.6 trillion.
Less Financial Stress
What would having a months cost of living in a bank account do for you emotionally and psychologically? Would this mean not living pay check to pay check? What about being able to afford that unexpected car repair, and being able to cover that often raised $500 for an unforeseen expense. The stress relief and feeling of well being, yes, these are the benefits of having an emergency fund.
Now, multiply the amount saved by 2, 3, 6, 12, or 24. The more you save, the better the feeling. The more saved in an emergency fund, the less financial stress.
An Emergency Fund Provides Confidence
With less financial stress, comes confidence. The confidence to take active steps in life to better yourself and financial position. If you are not worried about living pay check to pay check, you can focus more on your career, education and/or family. All of which builds confidence. The more you save, the less on a tight rope you live. The more you save, the less reliant you are on your job to pay for the next 1, 2, 3, 6, 12 or 24 months of expenses.
Confidence is the ability to push back when your boss mistreats you or put you in a compromising situation. Having an emergency fund puts you in a position to fight back because financially, you may not be completely reliant on that job. An emergency fund gives confidence and options.
An Emergency Fund Creates Opportunity
Having an emergency fund allows you to take advantage of opportunities. Opportunities do not come along on a predicted timecourse. Opportunities present themselves on a random untimed basis.
Consider the previous financial downturn of 2008. To many, the recession was a devastating event for all the known reasons. However, to others who had money saved and were able to buy into the stock market at a significant discount or purchase homes at discounted prices, the recession was a massive opportunity. The financial downturn of 2008 was a realized opportunity to many who had the financial reserves to take advantage.
While the financial downturn of 2008 is an outlier with regard to the size of the opportunity, the same principles apply for the small opportunities that present themselves daily. Those who have the financial capital and confidence to do so, will take advantage of these opportunities. Having an emergency fund will place you in a better position to take advantage of small and large opportunities alike.
Conclusion
An emergency fund is a specific group of assets, typically cash, that are readily available to help one navigate unexpected financial difficulties. These financial difficulties include but are not limited to loss of a job, illness, and/or repairs. Whatever the amount you have settled on trying to save in an emergency fund, start saving now. On your journey to financial independence, there are many benefits of having an emergency fund.
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