An emergency fund is simply money that you put away to use when something unexpected happens and it is money that you will wish you had when ‘that something’ unexpected does happen.
The unexpected can be
- Health Related
Yes, you are young and strong but even the young and strong do get medical or dental emergencies. Fine if your employer has a Medical Scheme you fall under and medical emergencies are not a factor for you but, even if you are covered it is likely that not all the costs are covered. Therefore you need an emergency fund just like the person who has no help from their work place.
Also, a family member may become suddenly ill, may pass away and unexpectedly you may need to travel. An emergency fund is there for this kind of situation and will lessen the stress on you and your loved ones.
- Property Related
Taps start leaking, the sewage system gets blocked, and the geyser stops working in the middle of winter, windows are broken by accident and your car even if it is close to new may break down and will need immediate repair so you can continue working. Your emergency fund can be used here.
Note, a car service is not an emergency and you should have this listed under irregular expenditures. Just like your insurance premium or road taxes are not an emergency. These types of expenses are not unexpected; they are just irregular. Just like some house maintenance issues are irregular expenses and not emergencies.
A property related emergency may be covered by the owner of the property if you are renting but if not; your emergency fund will come in handy here.
- Job Related
You can lose your job or not get a contract you were very confident of getting. Also, you can be without a job for a while and not move directly from one job to another. This can result in an unexpected income shock.
Income shocks are a fact of life for many people especially with the high levels of youth unemployment we face. Many young people face gaps between jobs because of the temporary work they have to accept or the high competition there is to get contracts.
So like “making hay while the sun shines” take advantage of good fortune and store something away in an emergency fund that can help to plug the gap between your reduced income and your essential costs after you get an income shock.
The emergency fund you start will help meet your essential costs while you work towards getting a regular income again or getting another lucrative business contract. Your emergency fund will always serve you well whenever you are in the middle of stabilizing your finances. Start one immediately.