Parents need an emergency fund before they tackle any other personal finance obstacle. Emergency funds are more important than paying off debt and they are the first step you and your spouse should take when a windfall amount of money enters your budget. Here are five reasons an emergency fund is the most important step you can take to have security in your personal finances.
There is so much you can’t control.
In a lot of ways, having kids is pretty random. They run into stuff, they aren’t scared of germs, and their teeth seem to grow wherever they feel like in their mouth. When you are in charge of the health and wellbeing of children, it leads to a lot of unforeseen expenses. If you don’t have an emergency fund, you are one accident away from a financial collapse when paying the emergency room bill means missing credit card payments, which snowballs from there. Having an emergency fund gives you a cushion to stop that vicious cycle before it starts.
Being ready is important to you.
There are times when you can save money but only if you have money saved up. For example, when a time of the year like Black Friday comes along, you can replace household appliances and other items for less money. Having an emergency fund can enable you to make a purchase when you find an unbeatable deal. Use with caution! It’s not smart to use your emergency fund to replace nonessential items, like the big screen television that you find on sale. If you have old debt in collections, you may be periodically offered a settlement to forgive the debt for a fraction of the original amount owed. It can be difficult to save that money aside when you have debt to pay, but you can save a lot of money if you are offered an opportunity like this.
You have debt to pay down.
What parent today can say they are debt free? If you have debts that you make monthly payments on, you need an emergency fund. Although that might sound counterintuitive (wouldn’t it be smarter to pay off your debts first?), you can’t be confident in your obligations until you have an emergency fund in place. When money gets tight or unforeseen expenses drain your budget, which monthly bill is the first you decide to put off a month? Credit card debt. Despite being the easiest bill to get behind on, credit cards can quickly become a burden more than you can handle. That’s why an emergency fund is so important, so that you are prepared no matter what happens to continue making payments on time as you need to.
Retiring someday sounds like fun.
Saving money always seems to be the last of our priorities, and it’s easy to understand why. Sometimes we are overwhelmed with other bills to pay, and sometimes we feel nervous about not having immediate access to our money in case we need it. That kind of anxiety makes it difficult to save for retirement, especially for younger adults. Having an emergency fund gives you confidence that if something comes up, you have a backup plan. The more confidence you have in your finances, the easier it will be to save for retirement.
You want a standard of living.
Money isn’t always steady. Owning a small business means periods of boom and bust, and job security is at the back of any employee’s mind. I want my child to grow up with a certain standard of living. It’s not that fancy of a living standard, but it’s something that they can count on. I’m not rich, but I have money to buy them new shoes when they NEED it. I like that feeling of being able to provide for my kids. With an emergency fund, this is all possible.