Perhaps you’ve heard the old saying, “Life is full of uncertainties.” Old sayings tend to become old sayings because they voice certain truths. While life is indeed full of uncertainties, one of its certainties is things do change. Bright and shiny days eventually give way to clouds and rain—and vice versa.
The good news is guaranteed title loan approval can be a big help when financial “rainy days” come. You will also have done yourself a huge favor to have some cash set aside for unexpected situations. This is why all competent financial professionals recommend building and keeping an emergency fund.
What is an Emergency Fund?
Cash you’ve held back for the specific purpose of dealing with unexpected expenses is known as an emergency fund. This should be separate from your regular savings and/or investments. Car repairs, home repairs, medical costs and even the loss of income can happen without warning. A well-stocked emergency fund can serve as your safety net in such instances.
Without one, you might be forced to take on debt to deal with the problem, which could actually make the problem worse in the long run. What’s more, even if you don’t have enough cash in your fund to deal with the problem completely, you won’t have to take on as much debt as you would without the emergency fund.
Things to Consider Before Using Your Emergency Fund
With that nice chunk of change set aside—potentially burning a hole in your pocket—you might be tempted to make purchases you wouldn’t otherwise consider. This, of course, would defeat the purpose of having an emergency fund in the first place. This is why it’s important to be able to recognize a true emergency fund situation.
Here are some good questions to ask before dipping into your emergency fund.
- Do I really need this, or do I just want it?
The desire for instant gratification is a powerful thing. So much so, it can convince us something we just want is something we really need. For example, we sometimes feel the need to get a new car. However, unless the one you have is in such bad shape it would cost as much or more to fix it than get a newer one, that’s probably want whispering in your ear—rather than need crying out to be met.
- Is this something I need right away?
A need, while valid, might not be immediate. Discovering your furnace isn’t working in April might be an expense you can put off while you save up to deal with it before October or November. Using that approach, you can avoid tapping into your emergency fund. Figure out how much time you’ll have between the time you notice the problem and when you’ll absolutely need to have it corrected and set aside enough each month to get it fixed with cash just before the need becomes acute.
- What effect with this have on my day-to-day life?
A punctured tire that cannot be repaired might constitute an emergency if it’s on the car you need to get back and forth to work every day. On the other hand, a broken washing machine might just mean going to a Laundromat until you save up some cash to get it fixed or replaced. Considering the effect a situation has on your day-to-day can help you preserve your emergency fund for something more disruptive.
When to Use Your Emergency Fund
Losing your job could well mean dipping into your emergency fund to cover household expenses while you’re looking for another one. This is why most experts recommend setting aside three to six months of living expenses to make up your emergency fund. Similarly, a medical emergency that must be addressed right away is a good reason to tap into your emergency fund. However, asking yourself the questions above in most other situations could help you preserve your emergency fund for a time when you have no other choice but to use it.