It can seem tough to save money for a crisis that might never occur when at the same time, you're struggling to cover your regular monthly bills. However, the COVID-19 pandemic's economic repercussions serve as a stark reminder of how quickly things may go wrong. While pandemics may only happen once every century, a financial disaster can completely destroy even the most well-thought-out budget. Here are five compelling reasons to start an emergency fund immediately if you've previously put it off.
1. Medical Expenses
Medical expenses can be one of the massive financial burdens a person or family can face. According to the National Highway Traffic Safety Administration, three million people are injured every year in car accidents on U.S. roads. This highlights the importance of having an emergency fund in place to cover the potential cost of unexpected medical expenses.
In the event of a car accident, medical expenses can include emergency room visits, surgery, hospital stays, and physical therapy. These expenses can add up quickly, especially if there are long-term injuries or disabilities. An emergency fund set aside can help cover these unexpected medical expenses. It can also help alleviate the stress and financial burden of dealing with medical bills while recovering from an accident.
In addition, an emergency fund can also help with other unexpected medical expenses, such as a sudden illness that may not be covered by insurance or if you are out of network. It's also helpful in case of a pandemic where you might lose income due to self-quarantine.
2. Cover Legal Expenses
Legal expenses can be a significant financial burden for individuals and families. They can arise from various situations, such as a slip and fall incident at work. The National Safety Council reports that 22% of slip-and-fall incidents make employees miss work for over 31 days. In case of a slip and fall incident, legal expenses may include lawyer's fees, court costs, and settlement or judgment amounts. These expenses can add up quickly and can be especially burdensome if the individual can't work due to their injuries. Setting aside an emergency fund can help cover these legal expenses, alleviating the stress and financial burden of dealing with legal fees and case complexities while recovering from an injury.
It's not just slip-and-fall incidents that can lead to legal expenses, but also other incidents, such as property damage, personal injury, and even wrongful termination. An emergency fund can also help you to fight for your rights if you believe someone has wronged you.
3. Fallback During Business Interruption
Business interruption can have a significant impact on small businesses. Various factors, such as natural disasters, equipment breakdowns, or cyber-attacks, can cause unexpected interruptions to operations. Cyber attacks are becoming increasingly common and can cause significant disruptions to a small business's operations. In fact, 60% of small firms that are victims of a cyberattack fail within six months, according to the National Cyber Security Alliance. The costs associated with a cyber attack can include restoring systems and data, lost revenue, and legal fees. These expenses can add up quickly and can be especially burdensome for small businesses that may not have a large financial cushion.
An emergency fund can help small business owners cover the costs of unexpected interruptions to their operations. It can also help alleviate the stress and financial burden of dealing with these unexpected expenses while trying to restore operations.
4. Use in Case of Job Loss
Job loss can be a stressful and uncertain time for individuals and families. It can lead to a significant loss of income and can make it difficult to pay bills and meet living expenses. An emergency fund provides a safety net in case of job loss. It can help individuals and families to sustain their living expenses while they search for a new job. This can include covering expenses such as rent or mortgage payments, utilities, food, and transportation. An emergency fund can also provide a cushion for unexpected job-hunting expenses, such as paying for transportation to interviews or paying for a job search website or agency.
5. Help Withstand Natural Disasters
Natural disasters such as floods, fires, and hurricanes can cause significant damage to homes and businesses. They can lead to costly repairs and rebuilding expenses that can be difficult to afford. In addition, natural disasters can disrupt normal life activities and make it hard for people to access their income.
An emergency fund can help individuals and families to cover expenses in the event of a natural disaster. It provides a financial cushion to help pay for repairs and rebuilding as well as, cover costs associated with temporary housing, food, and other living expenses. It also helps cater for expenses not covered by insurance, such as evacuation expenses or money to replace personal items.
It can make you feel more at rest to know that you have enough money to take care of yourself in an emergency. Even if you can't plan when an unforeseen cost or other problem may hit your budget, you can be ready to bounce back by saving money expressly for unforeseen costs or a loss of income.