Most financial experts would agree that having an emergency fund is one of the most important financial decisions a person can make. To understand why, you first need to understand what it is.

The word “emergency” should give you an idea – these are funds stashed away for emergency purposes. Essentially, it’s money for a situation that cannot be anticipated or predicted.

Emergency funds are mainly intended to prevent a person from getting into credit card and other sorts of debt. The damage on your credit history if you miss payments or just the sheer amount of money you owe can be overbearing.

That aside, here are some scenarios where having an emergency fund can save your financial skin.

Job Loss

Job loss is one of the most biggest reasons why you need an emergency fund. As a rule of thumb, you need to stash at least your three to six months worth of expenses in the emergency fund in case you lose your job.

This is a hard and fast rule and won’t work for everyone, but usually the more money you have in your emergency fund, the better off you’ll be until you can get a new job. If you’re hurt on the job, it’s likely you’ll be eligible for social security disability – but this isn’t always the case. Of course, in an ideal unemployment case, the fund stashed for 3-6 months can stretch a little long. But as long as you have that money there, you should be able to survive job loss.

Home Repairs

Nobody wants to live under a leaking roof but in some cases, such situations cannot be avoided. Of course, it is a good practice to have a home insurance coverage as a homeowner but the insurance may not cover every expense you have for home repairs.

Your emergency fund may come in handy here to reduce the financial pressure when something major needs to be repaired at your home. If you have the funds set aside, you won’t have to borrow money or worry about repairing bad credit.

Auto Repair

Car breakdown may not just affect your day to day transportation–it may affect your business and employment, especially if the vehicle plays some role in your job. The situation even gets worse if you do not have access to public transportation. In that case, you’re stuck with alternative options such as using a ride-sharing company or renting a car, which can both get expensive.

Emergency funds can cover for the car repairs, and you’ll be back in your own car in a few days.

Medical Bills

Medical debt can cause some serious problems if you’re not prepared to pay your bills. It’s actually the leading cause of bankruptcy in the United States.

Basic medical insurance is sufficient for medical bills for minor illnesses and injuries, but it can be grossly insufficient if you have a major illness, especially one that requires surgery or physical therapy. And if you’re not insured at all, even minor things can be crazy expensive.

Injuries and illnesses hurt your finances way beyond medical bills, too. They can affect your career. You can go on disability if you get hurt at work, but that might put you in a legal battle with your company. If you’re hurt or get sick off the clock, you may have some bigger problems.

That can affect the whole direction of your career, and even your standing at your current company. Legally, they won’t be able to fire you, but you can see your role diminish quickly.


Nobody expects a loved one to suddenly die, nor do they have a large sum of money laying around to pay for funeral expenses. This can result in you spending a huge sum of money, even if the money is unavailable.

The average funeral in North America costs between $7,000 and $10,000, which to most people, is no small amount. Having that money set aside could ease your mind as you’re grieving the loss of your loved one.

Unanticipated Travel

Some travels are simply unavoidable but result to unexpected expenses. It could be a family emergency in another state, or an important wedding. Embarking on such travels could put you in a dire financial strain but by having an emergency fund, you will come home with less stress.

Emergency funds are not just stashed for the rainy days, they are kept for emergency financial situations. It is highly beneficial in all sorts of situations, and you will be thankful to have one when the unexpected comes up.

Be Prepared as Possible

As life would have it – nothing goes perfectly as planned. Things happen all of the time, completely out of the blue. Although this may not be fair, it is something you can start preparing for right now. You don’t want to find yourself in a situation that leads to a downward spiral of more awful situations.

Have an emergency fund and keep it safe. Only use this stash of money for an actual emergency. If you can’t decide whether the situation is an actual emergency or not – think long and hard about it before you spend the money.