Most people don’t have emergency funds — and if they do, they usually aren’t for very much.
Most experts recommend that you have at least six months worth of expenses squirreled away in an interest-generating account of your choice. And yet, most people don’t have this much liquid cash reserved for a crisis.
Although your life may be flying along without a hitch to this point, you can be sure that life won’t always be so smooth. By their very nature, crises are unexpected — and costly.
Let’s look at three of the most common personal disasters that catch people off-guard everyday, and their potential financial fallout:
- Lawsuits. This can stem from any number of occurrences — a divorce, an injury, even an argument that swells out of proportion. If you find yourself embroiled in a lawsuit, the odds are it will end up costing you a lot of money. You’ll most likely lose time at work, find adequate representation, and generally have your schedule thrown completely out of whack. Lawsuit funding and personal savings will be your best friends in these situations. An emergency fund can help ease the additional burden of temporary lawsuit costs by allowing you to keep paying the mortgage, buying groceries, and keeping your credit card and other bills paid.
- Injuries. Whether they’re at work, home or on the road, people get hurt all the time. In fact, the odds are very good that you’ll have more than one hospital stay in your life that lasts more that 24 hours. Obviously, hospital visits can run a lot longer than that. When it comes to driving, Americans have car accidents, on average, once every 18 years. That’s a long time to go between wrecks; and it’s no guarantee that you won’t have one sooner. If you do have one, hopefully, you aren’t seriously injured — but if you are, an emergency fund will keep you and your family afloat while you’re away from work.
- Career changes. All of us have a dream job; something we would love to be doing but aren’t. An emergency fund may lessen the impacts of leaving the security of your old job for something a bit riskier financially, but more personally rewarding. After all, unless you can hit the ground running in your new endeavor, the odds are you’re probably going to have to take a temporary pay cut.
Emergency funds can be handy in a myriad of ways. True; in a best-case scenario, you should never have to use it — but if you do have to use your emergency fund, it’ll make it a lot easier for you to weather whatever financial storm comes your way.
So start now, saving a little bit every month, until you’ve got enough to get you by for half a year. Then, once you have your savings discipline worked out, you can start saving for other important things — like a well-deserved vacation.
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We keep our emergency fund mostly for career changes. But lawsuits is something I’d never really considered before and would definitely throw things out of balance for a while.
I was happily working, had health ins etc. Got sick/hurt and it was a life and limb threatening spinal abcess. Was in ICU for about 8 days, in hospital 5 weeks. My company fired me and canceled my insurance with no notice while in ICU. So I am lucky to be at about 98% back. Three in with same sickness, and only one survived.
So I survived but am on hook for about $200k in bills. Plus unable to work for another 6 weeks while learning how to walk etc again. My emergency fund covered all bills for only two months despite having six months income saved up. But I kept my house, and my credit score is still about 850. I will get back where I was, but it will take time. Thank God I have always saved for that rainy day!
And by the way, it was TOTALLY legal to be done that way by my employer in the state of Tennessee
Wow. That is terrible, Deb. I am glad you’re better now. Hang there. Thank you so much for sharing your story!
For the reason of the unknown is why I recommend you have an emergency fund that holds at minimum one year of living expenses. It is best to have the money for emergencies and not need it than to need it and not have it.