To many Americans, the idea of setting aside a few bucks each pay period for a rainy day seems difficult and unnecessary. It would seem that putting that extra $50 or $100 every two weeks towards a bill or using it to buy something you enjoy would be best. Not to mention, you barely have enough to cover your monthly expenses as it is, and taking even a few extra bucks each month from the budget seems as if it would do more harm than good.
Unfortunately, it is this line of thinking that has many households today struggling to survive and drowning in debt. Though there are convenient and fast solutions like payday loans to get cash when you’re in a financial jam, having an emergency fund is still highly recommended. Here’s why:
Handle Life’s Unexpected Events
Life truly is unpredictable. You never know when something could occur that requires you to have a large lump sum of cash to resolve it. Your car could break down or stop working altogether, the furnace could go out in the house requiring you to get it repaired or replaced, you could get sick or injured and have to be out of work for a long period of time, your marriage could end causing you to have to live off of one income, an aging loved one could need to move into your home, the list goes on and on. As these all require more than just a few bucks to handle, having funds set aside in a savings account helps.
Saves You Money
When you’re hit with a financial emergency, but don’t have the funds set aside to cover the costs, you have to rely on other financial solutions to get you through. This often means charging it to a credit card or taking out a loan. While these financial resources can be beneficial at times, they don’t come without an added cost. You will be responsible for paying back what you borrowed plus interest and other associated fees. The longer it takes for you to repay the loan or credit card, the more you end up spending. Not to mention, if you fall behind for any reason, these fees increase, therefore, increasing the amount you have to pay out of pocket.
If you had all or some of the money you needed in an emergency fund, however, you wouldn’t have to borrow as much (or anything at all) and, therefore, save yourself a lot of money in the process.
Helps You Sustain Good Credit
Another complication you could run into if you don’t have a rainy day fund is ruining your credit. Thankfully, there are short-term loan providers that offer no credit check solutions for those with bad or no credit. However, if you’re applying for a bank loan or a credit card, the first thing lenders will do is check your credit. These inquiries lower your credit score. If you’re approved for the loan or credit card, but don’t pay the amount due on time (or at all), this makes things even worse. Negative reports such as late payments and collection accounts will be added to your credit history. This not only drops your credit score but reduces the chances of you being able to use a loan or credit card as a financial lifeline in the future. Yet, if you could simply dip into your savings account to cover the costs, there is no need to have your credit run or worry about how and when you’ll repay what you owe.
Provides Peace of Mind
Finally, having an emergency fund provides you with peace of mind. When an unexpected circumstance unfolds the financial pressure can cause an undue amount of stress. This stress can lead to physical and psychological issues as well as trouble at home and in the workplace. Not to mention, having an emergency and not knowing where you’re going to get the money from, can drive you insane. If you have a little nest egg off to the side, however, there is nothing to worry about. You can handle your personal emergency without a headache.
It may seem unnecessary to set money aside for a rainy day when you have so many things going on right now that you need to pay for. Yet, with life being as unpredictable as it is, you never know when you’re going to need that extra financial boost to get yourself out of a jam. Though there are solutions like credit cards and loans available, having your own money tucked away keeps your credit intact, saves you money, and provides peace of mind. So, if you haven’t already done so, take the necessary steps to build your emergency savings account today.
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