Fully Funded Emergency Fund: The 8 Benefits

Over the last few weeks my family has reminded me of the importance of a fully funded emergency fund.

In the last couple of months we’ve had termites, a broken oven, truck air conditioning that went out, and our microwave is on life support.  While none of those events were pleasant, I’m thankful that we had a fully funded emergency fund to absorb both the cost and the stress.

8 Advantages to Having a Fully Funded Emergency Fund

1. You are able to financially back away from the edge of a cliff. Some people live in a world where one bit of added financial pressure causes their entire financial house of cards to crash.  An emergency fund allows life’s speed bumps to feel like speed bumps – not brick walls.
2. An emergency fund gives you the chance to be involved in other people’s emergencies. There are devastating things that happen in other people’s lives.  There is no rule that says this is only for your emergency.  If you feel called to assist someone in their own life emergency, then at least with an emergency fund in place you have something to offer.
3. Helps you prepare for life’s unpredictability. But, I guess that in some ways that makes life predictable.  You can predict that life will surprise you.  While you might not know what will go wrong, we should all know that something will go wrong.  Many of those unpredictable facts of life bring with them a financial price tag.
4. Your marriage may improve. While money can’t buy love, it can help people feel more secure.  Marriages can be filled with a lot of pressure.  Why add on to those pressures?  Probably one person in the marriage will feel better with a little financial margin.  When people feel better they worry less and are generally nicer to be around.
5. You may start to make better choices. One thing that stress and worry does is it clouds our vision.  We don’t think as clearly when we are not well rested.  Some people worry about their financial situation, and as a result, it distracts them from making wise choices in all areas of life.
6. You might enjoy your work more. Wouldn’t you enjoy your job more if you felt like you got to choose to be there?  Many people, unfortunately, hate their job, but feel like they need to work.  They cannot even go one week without a pay check.  If, however, you have six months worth of living expense in the bank account you have more flexibility to choose work you love.
7. The emergency fund saves you money. I break some general emergency fund guidelines in order to save money with my emergency fund.  Rather than paying some bills month by month I’ll use the emergency fund to help cash flow large annual bills like life insurance, auto insurance … My theory is that even if I had an emergency I would pay for those items out of the emergency fund.  Each passing month the emergency fund is replenished because I pay the emergency fund, not the insurance company.  Of course, to do something like this you will need to lean towards six months of expenses in your emergency fund.
8. The emergency fund protects your investments. Far too often people encounter a financial crisis and decide that their best option is to take money out of their retirement savings. As a result, they pay outrageous early withdrawal fees.  Protect your investments by having an emergency fund in place to cover life’s unexpected events.

Emergency Fund Tips:

Where Do You Keep The Emergency Fund? Page 2

Your emergency fund money should be easy to access.  In fact, I personally try to keep about $1,000 in a safe at home (no, I’m not telling you where I keep my safe).  The rest should be in a high yield savings account (I use ING Direct) or money market account.

How Much Emergency Fund Should You Have?

Briefly, you should decide based on your work situation and your personal preferences.  Anywhere between four and six months would be sufficient. Dave Ramsey says 3-6 months.

Photo by peasap.

What are some other advantages of a fully funded emergency fund?

Other Great Articles:

1. An Emergency Fund is Not a Luxury, it is a Necessity
2. Mutual Fund Investing Vs. Index Fund Investing
3. 5 Reasons to Keep Emergency Funds in an Online Savings Account