An emergency fund is a sum of money the family keeps separate from savings and commonly used bank accounts. The sole purpose of the fund is to cover unexpected expenses after an emergency. Many families do not have an emergency fund. This can be a costly mistake. There are five reasons why every household needs an emergency fund.
1. Protect Savings
A good reason for an emergency fund is to protect existing savings. Long-term investments and retirement accounts often lose value if a person needs to make an early withdraw. Maintaining a separate emergency fund will make certain that these savings and investments are still around later when they are needed for retirement.
2. Medical Emergency
Medical emergencies can happen at any time to anyone. Medical emergencies can stop a person from working. Medical bills can accumulate quickly. An emergency fund ensures that families have the money on hand to cover basic hospital expenses, medical device purchases and copayments without having to empty a bank account.
3. Maintain Life Insurance
Life insurance policies offered through services like SelectQuote provide financial security for families if a loved one dies. The term life policies on SelectQuote.com can guarantee a family income to deal with funeral costs, mortgage payments and daily expenses while adjusting to the loss. An emergency fund makes certain that medical issues or an accident do not make it impossible to continue maintaining a life insurance policy even if the policyholder cannot work. This allows the family to have peace of mind about the future.
4. Preserve Credit
Late payments or other sudden expenses can negatively affect personal credit. Poor credit can make it difficult to get financing for a new car or other purchase in the future. Poor credit can even affect certain insurance rates. An emergency fund makes it easier to avoid missed or late payments every month. This protects personal credit.
5. Home Repairs
Any number of items in a home from water heaters to air conditioners or the roof can break and cause problems. Living without hot water or with a hole in the roof can be uncomfortable and ultimately dangerous. An emergency fund is important because it makes it possible to perform home repairs as needed. The emergency fund will keep the home healthy and safe for the entire family.
Families with an emergency fund need to maintain the balance at all times. Minor emergency expenditures should be replaced as soon as possible. Allowing the fund to sit empty after an emergency is a mistake. Some part of income should always be placed in the fund until it is large enough to handle any emergency.
This is a guest post written by Madyson Grant
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