If you’re struggling to make ends meet and you are faced with an emergency cost, you may not know how you’re going to pay for this, or who you can turn to. There are a range of options if you need financial support, from payday loans to credit unions, but there is one way you can manage this issue yourself – with an emergency fund. This is a pot of cash put to one side, away from your monthly income. You can add to this each month and build it up slowly. An emergency fund gives you a financial cushion to help you manage emergency expenses without the need for support in the form of loans. Read on to find out more about how they can help you navigate unexpected costs.
What is an emergency fund?
An emergency fund is an amount of cash separate from your monthly income. Your emergency fund should be added to each month to work your way up to an amount you can use to deal with various unprecedented emergencies, like medical and vet bills, or car and home repairs. Having an emergency fund means you can deal with expensive costs without having to disrupt your monthly cash flow, putting your primary expenses at risk. It also reduces the need for financial help in the form of personal and short-term loans.
Protection against unexpected costs
Emergency funds can help you with unexpected expenses by giving you a safety net of cash that will not affect your monthly income. If you find yourself in a situation where you have an expensive bill to pay without an emergency fund, you will likely have no choice but to pay it with your monthly income. If your monthly income is already struggling to cover your living expenses, another cost could push you into debt. With an emergency fund, you can pay for your expenses without having to worry about your monthly pay covering this.
Car repairs and home maintenance
Many of us need a vehicle to get from A to B, but there may come a time when your car doesn’t start or needs an urgent repair for you to keep using it. This can be expensive, and if your income is stretched, you may be wondering how you’re going to pay for it. This is where your emergency fund comes in. You can cover the costs needed to repair your car or home quickly and easily, minimising the impact on your life, and on your wallet.
Job loss or income interruption
Unfortunately, no one is immune to job loss, redundancy, and other types of income interruption. This is another reason why you should try to build an emergency fund when you can to help you bridge the gap in income whilst you look for another job or find an alternative source of income. Having this safety net of cash will help to reduce stress and prevent you from going into debt.
Financial peace of mind
Generally, having an emergency fund put to one side to use if the worst happens will give you financial peace of mind. Money worries can seep into many parts of our lives and affect us in a range of ways, but having a cushion of emergency cash will ease your mind and release the pressure that comes with trying to pay your bills with a low income.
Avoid high-interest debt
Whilst some loans can help you when you need it most, especially if there’s nowhere else to turn, an emergency fund allows you to navigate unexpected expenses without the need for high-interest debts. These loans can be difficult to pay off due to their expensive nature and could lead to becoming trapped in a debt cycle – using your emergency fund to pay for your emergency costs means you can avoid debt all together.
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