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As we enter 2019, I’ve decided to do more saving and less frivolous spending. Sometimes my income gets irregular, and I will need to budget my funds more wisely. If we are going to have a better handle on our finances, we will need to save for emergencies and determine needs versus wants. Too often however, many of the expenses we think are emergencies are really not. So in this post I want us all to think about what real financial emergencies are and prepare well for them.
A job loss is a real financial emergency, and your emergency funds should be used to cover necessary expenses while you transition to a new job.If you still have your job, it is important that you save part of your check each pay period. By doing this you have a safety net should unemployment occur.
These are situations when emergency funds are important to have. Maybe you just found out that you’ll need a major surgery that your insurance company will not cover or at least cover partially. You can use your emergency funds to cover the surgery costs. Or your spouse is out of work temporarily due to a medical emergency. Medical bills are expensive, and you want to have adequate funds to be able to afford them.
Car Repair Expenses
In an ideal world, your car would drive perfectly fine all of the time. But the fact is that your car will need repairs at times. For these situations it would be helpful to have emergency funds on hand. This doesn’t mean that you skimp on quality when choosing a mechanic. Look for a mechanic who is trained and knowledgeable on how to fix certain car issues.
If you are a homeowner, you’re aware of the constant need to make repairs. Instead of taking out a hefty personal loan to pay for the repairs, why not use some of your emergency funds to do it? Some repairs do not always require a professional, and this saves you money in the end.
I live in New Orleans and in this region we are susceptible to hurricanes, severe thunderstorms, and occasional tornadoes. If you live in an area where you are prone to natural disasters, it is wise to build an emergency fund months before disasters strike. In New Orleans, hurricane season begins in June so we would begin preparations at the beginning of the year. This is especially beneficial if you need to evacuate for a few weeks or even months.
Avoid Frivolous Spending
Never spend emergency funds on non-essentials. These include:
- New cell phones
- Expensive outfits for the kids when they aren’t necessary
- Vacation expenses
- Concert or sporting event tickets
- Expensive hobbies that are not used for the purpose of earning additional income
- Kids’ extra-curricular activities
Benefits of Emergency Funds
There are great benefits of having an emergency funds. You won’t have to rely on personal loans or payday loans in order to pay for emergencies. With loans, the interest rates could be high and it might take years to pay them off. If you fail to repay those loans, it hurts your credit score. Another benefit of emergency funds is peace of mind. You’re not as stressed about financial emergencies if you have funds saved. When you have emergency funds, you can focus more of your attention on boosting income in order to prevent future financial emergencies.
Don’t Use Credit Cards for Emergencies
I heard relatives and friends tell me that it’s good to have a credit card for emergencies. I don’t agree with this because credit cards can make you think that certain purchases are for real emergencies when they are not. In addition, you’re getting into debt just to pay for emergency expenses. Credit cards are microloans and they could hurt your financial future if not handled properly.
In conclusion, emergency funds should strictly be used for real financial emergencies, not on our greediness for more things that will not satisfy us spiritually or emotionally.