THE SERIOUS IMPACTS OF EMERGENCIES
At a minimum, an emergency fund should consist of three months of your living expenses. If you pay $2,000 a month to cover the basics such as housing, utilities and food, then put aside $6,000 in your emergency fund. If you have dependents, your emergency fund should consist of six months of your living expenses.
Here are seven surprises that should motivate you to start or add to an emergency fund:
Job loss. Whether you’re laid off or decide to leave a job for personal reasons, an emergency fund provides a temporary income safety net to help pay for necessities.
Medical emergencies. Even if you have health insurance, it doesn’t always cover the whole cost of care, especially if you or a family member is in need of an ambulance ride, a major surgery or physical therapy. And don’t forget about your pets! Veterinary visits, especially during an emergency, can be costly if you don’t have pet insurance.
Cost of living increases. A fluctuating economy can mean fluctuating bills and housing payments. Whether your rent skyrockets when you renew your lease or your heating bill climbs higher with the cost of energy, an emergency fund will allow you to cover these costs until you find a better financial alternative.
Sudden moves. If your company is transferring you to a new office or you just accepted your dream job across the country, your employer will often help pay for your moving expenses – but not all the time nor always for the full amount. Movers, temporary housing and the cost of furnishing a new place can add up very quickly, so if you think a job-related location change is a possibility, make sure you have a cushion.
Car expenses. If driving is your main mode of transportation, a problem with your car isn’t only a headache, it impacts your ability to go to work, shop for groceries and fulfill other activities in your daily routine. Best case, an issue with your car requires replacement of minor parts. At worst, you have to replace it entirely. Either way, car maintenance is expensive and often required suddenly. Having an emergency fund can help mitigate this always stressful situation.
Major household repairs. You may have insurance to cover some of the more common household issues, but if you have a high deductible, it might be a challenge to come up with the cash to cover repairs. Whether you’re watching the paint on your house crack in severe heat or your basement floods, rest assured that your emergency fund will be there to fall back on.
Unexpected travel. It may seem ominous to plan ahead for mourning, but if you lose a loved one, the last thing you want to worry about is travel costs. You also wouldn’t want the cost of a plane ticket to prevent you from being there for the birth of a relative or friend's child. If you have to travel unexpectedly, your emergency fund can help keep charges off your credit card and ease stress.
Hurricane or tornado $7,232 (based on the average national average homeowners pay for the cost for repairs; out-of-pocket charges vary significantly based on your insurance provider)
Flood $26,807 (based on cost to your home and personal property, taking into account that most homeowners’ insurance policies don’t cover flood)
Earthquake$4,529 (based on the average national average homeowners pay for the cost for repairs; out-of-pocket charges vary significantly based on your insurance provider)
Medical emergency $1,322 (based on the average out-of-pocket cost)
Car accident $775 (based on the average out-of-pocket cost)
Sudden death of a loved one$10,833 (based on funeral-related costs)
Fire $12,635 (based on the average national average homeowners pay for the cost for repairs; out-of-pocket charges vary significantly based on your insurance provider)
The bottom line: An emergency fund provides the reassurance of knowing you have money to fall back on during an unexpected life occurrence.