Have you ever found yourself in a situation where you wished you had an extra £200, £500 or £1000 to remedy an unexpected financial situation, but the money simply wasn’t there? If you have, you are not alone. This is a common experience for many people, and it is precisely why having an emergency fund can make such a difference.
Plot your path towards financial freedom with our Hero’s Journey tool!
MyWalletHero is here to help you learn about taking control of your money, whether that’s paying off debt, working towards a short-term money goal, or investing for your future.
This tool can help you understand the next steps on your journey – simply choose a goal that best describes your current interests to get started.
It’s pretty much impossible to plan for every possible financial difficulty that could happen in your life, making it a smart move to build up an emergency fund. The fund can act as a buffer for unplanned expenses or short-term financial problems. Having an emergency fund means that when an issue requiring money unexpectedly arises, you can deal with it and move on quite easily, avoiding the risk of falling into debt and facing potentially serious financial difficulty.
Therefore, if you can afford to save a little each month towards financial security, creating an emergency fund could be a very good idea. Here are some common situations where an emergency fund might come in handy.
Losing a job
The loss of a job can be emotionally and financially draining and has the potential to send your finances into a whirlwind. It is possible to avoid this by having a sufficient financial cushion in place in the form of an emergency fund. This fund can help you take care of your financial expenses while you are between jobs.
A good place to start is to build an emergency fund that would cover six months’ worth of basic living expenses (which are the regular and essential expenses that you must pay to live). The thought behind this is that it might take you that long to find a new job.
An emergency fund not only ensures that your living expenses are covered while you are unemployed, but also allows you to focus on finding a job that is a good fit for you. If time is made tight by a lack of funds, you could find yourself pressured into taking a job that is unfulfilling or not a good fit overall.
There are times when you might need to make an immediate visit to the dentist, perhaps due to a debilitating toothache or a tooth infection. However, unlike many other NHS services, you will be required to foot at least a portion of the bill for any dental treatment you receive. This can be quite expensive, especially if it is an emergency, and without the required finances, you might be left scrambling.
4 iron-clad rules for saving money on everything
Our Editor Sam Robson has been on a personal cost-cutting mission for years – and it’s time to share his wisdom.
Check out his choicest saving tips and tricks in this free report, “Sam’s 4 Iron-Clad Rules For Saving Money On Everything”.
Just enter your email below for instant access to your free copy.
A sufficient emergency fund can you help avoid this scenario and ensure that in the event of any dental related emergency, your costs are catered for. In addition, the emergency fund can cover any expenses or loss of earnings while you recover.
Home and vehicle repairs
Owning a home or a vehicle comes with responsibility for any repair costs. Emergencies might prompt immediate and essential repair work to your property. If you do not have the money available to cover the work, the situation can quickly become quite stressful.
For example, a pipe in your toilet may burst, meaning that you have to call a plumber immediately to rectify the situation. If a fire were to break out in your kitchen and cause significant damage to your home, there would be a need for immediate repairs. Even if you have home insurance, your provider may not settle the claim quickly enough or may simply not cover the particular expenses that have arisen from the emergency.
Similarly, your car may develop a significant fault, meaning that you have to take it to a mechanic for repair. If you have an emergency fund, you can easily cover this cost without your finances being seriously inconvenienced.
Unanticipated travel expenses
Travel, especially long-distance travel, can be expensive. The costs can be even higher if the trip was not pre-planned or needs to be made at short notice. For example, you might receive news that a relative is ill or has passed away and need to travel immediately. An emergency fund can help to cover these last-minute travel costs and give you some peace of mind as you prepare to make a difficult trip.
An emergency fund is a comfort blanket to help you through those unexpected moments that might seriously impact your financial wellbeing. Having a fund gives you control of the situation and peace of mind that you have got the resources to handle most unforeseen financial challenges.
Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.