Life is unpredictable. We all know that. And many of us have come to that realization when confronted with an unexpected surprise that required more money than we were ready to cough up. When life hits you with a curveball, it’s essential that you have an emergency fund set aside to get you through unscathed.
Not only is it important to build a savings, but you also NEED an emergency fund exclusive to unexpected life events so that you don’t have to charge your credit card or dip into your savings account.
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How much do I need for an emergency fund?
The amount of money you save in your emergency fund depends on several factors. While some experts suggest that $1,000 is enough, others say you should have three to six months worth of expenses saved. It all boils down to what you can afford based on how much you earn annually, whether you have dependents, and how much credit card debt you have.
If you start in the $500 to $1,000, you can always add to it. If you have the flexibility to save more than $1,000, you can use a Nerd Wallet’s emergency fund calculator to determine just how much you really require in terms of basic living expenses. This would be based on your monthly:
- Rent or mortgage
- Utility payments (gas, electric, etc.)
- Telecom payments (internet, phone, etc.)
- Insurance payments (car, health, and home)
- Transportation costs (car payment, gas, public transit)
- Debt payments (credit cards, student loans, etc.)
- Grocery expenses
- Other expenses
Needless to say, life is expensive. Add to that the unfortunate twists and turns that come with it and you’re facing a potentially tough financial situation. All of those basic living expenses come before the unexpected.
In comes the emergency fund.
There are several ways to save money to put toward a life events fund. This money should be kept separate, whether in an additional savings account, a trust fund, or even partly in cash. Whatever form it is in, it should only be touched when you absolutely need it. And trust me, you will eventually need it.
One of our favorite ways to put money aside is using money-saving apps, our favorite being Digit. Digit allows you to save money without thinking about it. All you have to do is set your savings goals, like a family vacation, a new car, or in this case, an emergency fund, and specify how much you want to put aside at any given time. From there, the app does the rest. Learn more about Digit here.
11 Must-Have Money-Saving Apps
Here are 12 Unexpected Life Events that Require an Emergency Fund
1. Medical Emergencies
While health insurance does help mitigate large medical bills, it doesn’t cover everything.
If you don’t have health insurance, or if you don’t have insurance through an employer and have to pay privately, an emergency fund is incredibly important to have. A seemingly simple 15-minute consultation with a specialist could run you $200-300 out of pocket, and that’s before you are even treated!
Health care can be impossibly expensive and is a leading cause of debt and financial strife. While there is no predicting just how high unexpected medical bills will be, having emergency savings can help bring peace of mind in a time of stress, especially when the first invoices start rolling in.
2. Job Loss
The loss of a job, whether by way of being fired, laid off, or phased out is a financial emergency that EVERYONE should prepare for. It truly doesn’t matter how old you are, how long you have worked for a company, or how confident you are in where you stand with said company… you can lose your job.
In fact, a sad truth is that people can be let go for reasons that have nothing to do with them. For example, budget cuts may force employers to reduce staff… even employees that they truly love and benefit from, even when they didn’t do anything wrong. So it really can come out of left-field.
Saving at least a month’s worth of income is ideal so that if you do end up jobless for a period of time, you are still able to pay your bills and cover the essential living expenses.
If your job is unstable or unpredictable, or if you simply don’t make enough to save for an emergency fund, we would also recommend starting a side hustle to help you get by until you’re able to secure something more permanent.
3. Divorce & Child Support
Divorce can be a huge financial reality check for some, particularly if the marriage was not ended amicably, and if one spouse was the primary breadwinner for the family while the other stayed at home or had a small income.
In many divorces, finances are split evenly and child support is issued. However, what happens to the individual who earned little to no income? Eventually, he or she will likely need to get a job (or a second job), which can take a toll on the quality of life they were previously accustomed to.
Since divorce settlements and financial burdens are an incredibly loaded situation, with every conclusion differing by couple, we will leave you with this: the cost of divorce (legal support) and whatever comes after is expensive, and having a backup fund to lean on throughout the process is ideal.
4. Car Trouble
I KNOW you know how frustrating and expensive it can be to maintain a car! I swear, more money went into repairing my first car than I spent on the piece of crap in the first place!
Older cars with a lot of miles on them can be expensive AF to repair, especially when you absolutely must get the repairs done to operate the vehicle or pass inspection. If you rely on your vehicle to get to work, go on errands, or transport your children from point A to point B, you simply can’t be without it and can’t afford to ignore any issues that arise.
Car maintenance is one of the most common times that an emergency fund comes in handy because issues tend to happen when you least expect it.
5. Death of a Spouse or Parent
The last thing we want to think about is the passing of a husband, wife or parent, let alone the sadness and stresses that come with planning for the hard times in the days and months following.
However, death is an unfortunate part of life that cannot be avoided. While we hope to leave in peace rather than unexpectedly, accidents, sudden health issues and other rapid causes of death happen, and we must prepare for them in order to leave our loved ones as comfortable as possible.
Life insurance is an excellent way to protect yourself or your spouse in the event of an unexpected death, particularly when the family counts on that person’s salary as the primary household income.
Yup, getting married comes LOADED with unexpected financial stresses. The cost of a wedding can be astronomical. In fact, when we got married we ended up spending $10,000 more than we initially expected. Yikes, right?
While every wedding ceremony is different, you should always have a buffer for the unanticipated details, guests, and frills. This is because no matter how much you think you know, you really have no idea. If you are planning a shotgun wedding with the bare minimum… good on you! But if you are planning a full-on event, be prepared for an emergency in the form of more bills than you expected.
Aside from the wedding, marriage itself can be incredibly expensive, depending on the financial situation of your spouse.
Combining debt with your new husband or wife can be financially debilitating, or it can be fruitful, depending on how it is handled. If you choose to share your finances, the best way to handle incurred debt as a married couple is to come up with an action plan to pay it down either by following the snowball method or by attacking the credit cards and loans with the highest interest rates.
In this case, an emergency fund could be a useful resource to expedite this process before it gets too out of hand.
7. Household Repairs & Renovations
While most home renovations are planned and by choice, there is still the slight chance that you’ll need to put down some serious dough in the event of an emergency. This could be a major appliance malfunction (like a broken refrigerator), burst pipes, basement flooding, roof leaks, shattered windows, and more.
Many of these home repair projects come with a hefty bill, particularly anything that compromises the integrity, health, and safety of your living space.
8. Pet Illnesses & Veterinary Visits
Pet lovers around the world do not think twice about spending whatever they have to spend to keep their beloved furry friends healthy for as long as possible. They’re family, after all.
However, medical bills and veterinary visits for your cat or dog can be super expensive, especially without pet insurance, and you often have to decide quickly whether or not you are going to make the expense.
One in three pets requires urgent care each year leaving some pet parents with vet bills amounting to more than $1,000. Pet care is not cheap, so an emergency fund can be clutch when your little friend becomes ill.
9. Natural Disasters
While natural disasters may not be the first thing that comes to mind when creating an emergency fund, they shouldn’t be forgotten.
Where do you live? If flooding, tornadoes or earthquakes are not uncommon in your area, you should be prepared with homeowner’s insurance, supplies, and you guessed it… an emergency fund.
In fact, you may want your emergency savings to be in the form of cash. When the power goes out, ATMs won’t be operable for you to withdraw cash as needed, and chances are running your credit card will be a challenge.
If you don’t live in an area where natural disasters are common but are a believer in climate change, chances are you have thought about what might happen if you and your loved ones are faced with unexpected weather patterns. Saving for a surprise weather event may be in your best interest.
10. Travel Emergencies
Not to be morbid, but unexpected travel due to a health crisis or the loss of a loved one is a likely life occurrence if you don’t live near your closest friends and family.
Or, on a lighter note, travel for the birth of a friend or family member’s baby may be necessary.
Traveling unexpectedly by plane is expensive, especially if you live abroad. An emergency fund is a great way to get where you need to go without dipping into your savings or charging your credit card.
11. Loss of Financial Support (ie, Scholarships)
Receiving higher education is expensive and can range from many tens to many hundreds of thousands of dollars in cost. That’s a lot of money to be qualified enough to make money.
Some students are fortunate enough to be granted financial support in the form of scholarships to continue their education, and often, it is these scholarships that make it possible for the student to attend their school of choice in the first place. That’s why losing scholarships can come as a shock for parents and students alike.
Most scholarships require that students maintain a certain Grade Point Average (GPA) or academic standing in order to continue receiving their scholarship throughout their undergraduate or graduate career. Should this student not meet their requirements, they risk losing the assistance.
A situation like this is incredibly difficult to prepare for, but depending on how much you or your student is paying for tuition, an emergency fund can help soften the initial blow and help you make the necessary payments until you can find an alternative solution.
12. Increased Cost of Living
My sister has lived in Manhattan for close to 10 years, and for 8 out of those 10 years, she has lived in the same apartment. Her rent for her current apartment has increased almost every year that she has been there. In fact, she recently expressed that she felt she was getting priced out of her own home.
To avoid being unable to afford fluctuations in your bills, whether it is increased rent, higher utility bills throughout the seasons, or other basic living expenses, contribute to an emergency fund throughout the year. If you anticipate an increased cost of living and you know when it may happen, your fund can help cover the differences in your bills until you are able to make up the difference permanently.
There is no predicting when an emergency is going to occur. If there was, we would avoid them at all costs. Because of that, it is crucial that you as an individual, partner, child, and parent prepare for the worst and hope for the best. Saving money in an emergency fund or trust, and getting home, car and life insurance are some of the best ways you can recover should you be faced with any of these unexpected life events.