Here is how emergency funds can help you during an unexpected financial blowout.
1. Paying Off Your Debt
Your emergency fund can be your last resort to pay off debts when your credit score is dropping low. Plus, emergency funds can act as a barrier against financial bumps in the road when your monthly salary is used up in covering the expense for an unexpected situation. In short, emergency funds prevent your credit score from dropping and safeguarding you from accumulating more debt.
2. When You Are Starting a Family
Emergency funds are utilized during unexpected situations. However, your emergency funds can also help you when you start a family. Most Americans aren’t aware of the cost of raising a child. Moreover, when you have a new family member, your monthly budget is disturbed because planning the exact cost of raising a baby is difficult. In this situation, your emergency fund can be your haven.
3. Payment for Repairs
When you own a house, you should also account for its repair and maintenance costs. Perhaps, most Americans prefer living on rent due to this reason. Nevertheless, paying for unexpected pipe bursts or seepage in your walls might be expensive for people living paycheck to paycheck. Your emergency fund will prevent you from asking for a loan or help from your friends and family.
Having emergency funds will save you from different undesirable situations. Moreover, you will live confidently because you know you have money on the side. However, money loses its value against inflation. Hence, most people prefer to invest in real estate because land appreciates over time. Incase of an emergency, people would sell their land and use the money earned to pay off debts or home renovation bills. So, if you aim to live a debt-free life, you need to have an emergency fund. Otherwise, you will be asking for loans all the time, which will harm your credit score.