When it comes to managing our personal finances it is easy to forget that bad things happen more often than we would like. These things we need to budget for. Since it is hard to predict when emergencies will occur it is always smart to build an emergency fund as well as to leave some money aside each month.
It's always smart to build an emergency fund.
1. Job Loss
You may be doing great work at your current job but if senior management needs to cut costs you and your position could easily become part of that. Hence, it is important to be financially prepared for such an event by putting enough money aside to cover the period of time when you will not have a full-time salary coming in.
2. Bereavement-related Expenses
It is very painful when a loved one passes on. So, the last thing you need is for that to also hurt your finances. Funerals and other bereavement-related expenses are often very costly. Hence, it is important to have sufficient funds on the side to cover them.
Medical emergencies can be quite costly.
3. Medical Emergencies
Medical emergencies are something we all rather avoid thinking about but the reality is that they do occur. Medical costs can be quite substantial if your insurance does not cover the incident or illness. Ensuring you have enough of a financial cushion to cover such occurrences is vital.
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4. Car Breakdown
Auto repair costs can be high if your car insurance does not cover what needs to be fixed. If you require your car to commute to work or live in a more remote area and, therefore, always rely on your vehicle to get from A to B, then it is important to put some money aside to cover any potential car repair costs that may occur. Also, make sure you get your automobile checked every six months to prevent avoidable car breakdowns.
Since it is hard to predict when emergencies will occur it is always smart to have built up an emergency fund. It is also wise to allocate some money towards potential emergencies in your monthly budget. Any money that you do not use for emergencies each month, you can then throw into your savings post and use it to pay off debt or to make financial investments.