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Hi, I'm Dave.

You have financial goals and my job is to help you get there.

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  • Writer's pictureDave Wallace

8 Reasons Why You Need An Emergency Fund

An emergency fund is your friend. When properly funded, an emergency fund can save you financial future when crisis occurs.
Learn the top 8 reasons why you need an emergency fund

Life is full of surprises. When you're financially prepared, surprises have little impact on your quality of life. An emergency fund will give you the peace of mind to know that you will be prepared financially to weather the storm. Let's take a look at the top 8 reasons why you need an emergency fund.

1. Loss of income

This is usually listed as the primary reason you need an emergency fund—and for good reason. You have to have a stash of cash to pay for things if you’re no longer receiving a regular income. This could occur from a job loss such as a layoff. For the self-employed, this could mean a loss of business. No matter the reason, sudden loss of income is the #1 stressor to guard against with your emergency fund.

2. Major health expense

A trip to the emergency room could create a serious financial strain for you if you don’t have health insurance. Even if you do have coverage and have to get surgery, for example, you’ll still have to shell out money to cover your policy’s deductible and co-payments. You’re probably thinking, “Isn’t that what a flexible spending account is for—to cover out-of-pocket medical expenses?” But if you’re healthy and don’t usually have major medical expenses, you probably didn’t set aside enough to cover all the expenses you may incur. For example, when a family member had surgery last summer, he used all the funds in his FSA and paid $2,000 out-of-pocket.

3. Emergency pet care

You may be able to accommodate the regular expenses of owning a pet. But would you be prepared to shell out thousands of dollars if your cat or dog needed surgery? I spent $9,000 to pay for a medical emergency my pup experienced. Pet insurance would have been a major saver if I would have been wise enough to have it, however, my emergency fund allowed me to get her the care she needed to make full recovery, which was all I could ask for.

4. Car repairs

If you’re thinking, “I’d just use my credit card for repairs if my car broke down,” then consider this story. While in college, a friend gave me a ride home during a school break, and his car broke down while we were driving across southwestern North Carolina. It was a small town with only one mechanic—who didn’t take credit cards. My friend used his debit card to empty out his account, but it wasn’t enough to cover the bill. So he had to leave his hunting bow as collateral until he came back with more cash on his return trip to our university.

5. Home repairs

You have insurance to cover the major incidents. But if you have a high deductible, could you come up with the cash to cover it? Plus, insurance doesn’t cover everything that could possibly go wrong—and require you to shell out big bucks—when you own a home. For example, my husband and I had to pay $5,000 recently to rebuild a deteriorating balcony on our home—an expense not covered by insurance.

6. Bigger than expected tax bill

This was the unexpected expense that prompted me to create an emergency fund. Several years ago, I had a surprise tax bill. I received a refund the previous year, so I didn’t expect to owe the IRS—especially not close to $6,000. Plus, I had been paying down high-interest credit card debt. That left my account balance depleted at the time I finished my tax returns—only one week before the filing deadline. To top it off, I had a quarterly estimated tax payment due at the same time. So I wiped out my account to pay Uncle Sam, which left me exposed should any other unexpected events have occurred. It was a terrible feeling being broke—even if it was just for a few days.

7. Unanticipated travel

A death in the family could force you to purchase a last-minute plane ticket at an exorbitant price to get to the funeral. You don’t want this big expense lingering on your credit card bill, racking up interest. But you wouldn’t have to worry about it if you had enough cash in an emergency fund to pay your bill quickly.

8. Funeral costs

Many funerals cost more than $10,000. If your loved one had life insurance, the benefits you receive could cover the cost, but it could be months before you actually get the money. So you need a source of cash to start making payments in the meantime.

You've heard the old adage, "Change is inevitable." When it comes to your financial future, sometimes the best defense is good offense. A fully funded (3-6 months work of expenses) emergency fund will do wonders for your peace of mind. And when crisis comes knocking at your door, you and your loved ones will be financially prepared to weather the storm.

With love,


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