Is your family prepared if disaster should strike? Perhaps you’re ready should a child break a bone, a fire consume your home, or you get into a car accident. Insurance covers most of those incidents. But there are many incidents that fall outside the scope of most insurance plans.
Families can still prepare for these crises with emergency funds. These are in many ways like self-insurance policies. The differences are that there is no required premium and families can still use the money they set aside should that disaster not strike.
Why should your family have an emergency fund? There are plenty of reasons for doing so, no matter your family’s specific situation.
1. Job Security
If you have ironclad job security, congratulations. Most people, unfortunately, face uncertainty with their jobs. Companies seem to be laying off people all the time and even good employees find themselves on unemployment lines. Yet unemployment insurance doesn’t always cover everyone’s needs. Worse: what if you’re not eligible? Independent contractors, for instance, are not eligible for unemployment should they lose business.
The rule of thumb is to put aside six months’ worth of salary in case the worst happens. This can be helpful but it can also be excessive. At least a few months’ living expenses including mortgage, bills and food should suffice until you find new employment.
2. Appliances Break
How long do you think the average hot water heater lasts? If you guessed under 10 years then you’re right. That’s not a long time in the lifespan of a home. Additionally, within that decade the water heater might malfunction requiring a trip from a specialist. That’s a lot of money out of pocket there.
Plenty of other appliances can break at any time: furnace, washer, dryer, refrigerator — all appliances you use on a daily basis. Without an emergency fund you will be unprepared for these costs, meaning you’ll have to put them on credit. They’ll cost you significantly more if you pay them off in installments.
3. Plenty You Can’t Fix
If your pipes burst, if an electrical system malfunctions, if you sustain physical damage to your house, you might not be able to fix it yourself. Many of these tasks require specialists. While people might think plumbers don’t make a lot of money, that’s a misperception. They are skilled laborers and charge a premium for their services. Anyone who has seen a plumbing bill knows that they should probably have set money aside for such an expense.
There are plenty of household appliances that you just can’t fix yourself. Air conditioner repair costs a good deal for the same reason as plumbing. Need someone to look at your furnace so you can avoid paying thousands of dollars for a new one? That will cost you, too. Keeping money set aside for these expenses will prove a wise investment.
4. Rates Change
What you paid once for a product or service isn’t the price that you will always get. Prices of goods change constantly. For a prominent example, look at the prices at your local gas station. It seems as though they change twice a week. Will you be prepared if the price of something you depend on goes up?
Oil for household heating goes right along with gas. You might pay X dollars per gallon one winter but then see the rate rise to X+1 dollars next winter. Are you prepared for that increase? What if the interest rate goes up on one of your loans? These are all factors we must prepare for and keeping an emergency fund will help us deal with these rate changes.
5. Insurance Delays
If your house gets robbed, home owners’ insurance likely covers your losses. But there’s plenty of red tape between you and a check from the insurance company. Are you going to do without the stolen items until the insurance company figures out every possible way to deny your claim? And what if they do ultimately deny your claim? Keeping money socked away for such an emergency can help you get back to normal life more quickly.
This goes for all types of insurance, including car insurance. Will you wait and wait and wait for your insurance payout while your car sits at a shop unpaid for? Or will you dip into your emergency fund and get your car back while your insurance company sends your claim through the bureaucratic machine?
Life is unpredictable. Disaster can strike at any time and in many different forms. Families can prepare by setting aside money to cover some of these costs. It might mean sacrificing leisure while you build up the fund but you’ll be thankful you did should something unfortunate happen.
Pam Wilcox is a new homeowner who is just realizing the unpredictable costs that come with it. She writes web content for a living, mostly focused on technology, at sites such as BBGeeks.
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