The Common Arguments for Emergency Savings
Living paycheck to paycheck is a way of life for many Americans. We spend money as soon as it arrives, but we consider that to be normal. We may worry a little that this is contributing to our debt problems, but we are also pretty sure that it is helping us to live comfortable lives. When you are living paycheck to paycheck, there is never any money to set aside for an emergency.
Even if you are able to squirrel away a few dollars, there is no way that you can come up with anything significant. In the event of an emergency, you will need more than a few dollars. You will need a substantial amount of money in order to pay for any unexpected expenses.
If you try to live your life without an emergency fund, you are opening yourself up to danger. You are setting yourself up to make a bad decision to pay for an emergency when you don’t have money available. It is better to have money available than to not.
If you are having trouble saving money every month, you should not give up. You can make it work if you put your mind to it and work hard to make it happen.
The Common Arguments Against Emergency Savings
The Verdict: The Arguments Against Emergency Savings Miss the Mark
Does your family still need to maintain an emergency fund?
For some time now, many financial experts have argued that the days of the emergency fund are over.
The reasoning behind their argument is that the drop in unemployment and the gain in employment over the past few years has increased consumer confidence. That confidence has led to improved spending habits among Americans and has made a large-scale financial crisis less likely. If you’re wondering whether your family can get rid of that emergency fund or if you’re thinking about upgrading the one you have, here is what you should know.First Things First: What Is An Emergency Fund?
Before we dive into the debate, let’s take a look at what an emergency fund is and why you might need one.
An emergency fund is a stash of cash that allows you to pay for unexpected large expenditures. This can include car crashes, home breaks, unexpected medical bills, or other life surprises.
When you put money aside for an emergency fund, you free up the cash you’d otherwise use to pay for an unexpected expense. Since those expenses are generally unexpected, you don’t have the cash readily available to pay for them.
By putting that cash aside, you can avoid borrowing the money or going into debt.
The Strongest Argument for Emergency Savings: Investment Insurance
Everything seems safe and secure at the time, but then it happens…you lose your job, your vehicle breaks down, the roof starts leaking, your washing machine dies, and your teenager needs braces.
Without a financial disaster fund in place, any one of these scenarios can turn into a financial crisis.
But, what is the right amount of emergency savings to have on hand? And at what point do you no longer need to maintain an emergency fund?
Benefits of an Emergency Fund
An emergency fund can help to avoid using credit cards or taking out a loan when you need to make unexpected repairs. It is especially important for saving for large purchases such as wedding or family trips, a new car, or house.
Not only is an emergency fund useful for unexpected expenses, it can also be used for those things you've been saving for:
- Buying a house
- Pay for education or training
- Making a career switch
- Invest in a new business
An emergency fund allows you to take the plunge without the fear of being under water. Indeed, having an emergency fund in place could actually make you more financially stable in the long run.
Are You a “Newbie Saver”?
Be honest. How much do you have in savings? If you’re like most people you don’t have enough, or any, savings. What’s worse is that most people who don’t have any savings don’t even have an emergency fund, either! Their meager savings is being eaten up by excessive credit card and student loan debt payments, and they’re lucky if they have anything left over for an unexpected expense.
But what about you? Are you the type of person who could get by if there were a water leak in the bathroom? Or if your car broke down on the way to work? Chances are you have no emergency fund and, worse yet, you may not even think you need one. Well, you’re wrong. You definitely need one!
How Do You Know If You Have Enough?
Let’s face it saving is tough for a lot of people. You work hard to make ends meet and the last thing you want to do on your paycheck is throw some away into a savings account. However, how much money do you really need in savings for emergencies? When is enough enough?
If you’re under 35 years old, you should be have 6 months of living expenses in savings.