One of the most important assets that anyone can have when they are attempting to get their personal finances in order is an emergency fund. As any adult knows well, even the best laid plans rarely turn out exactly as planned. The unexpected happens and when it does, it usually costs money. An emergency fund is there to take care of these unexpected expenses so that it isn’t necessary to take on additional debt. So, what is the importance of an emergency fund?
The Importance Of An Emergency Fund
While your emergency fund probably needs to be bigger than you think, the first goal is to try and put together even a modest emergency fund. There are many ways to do this. Some are able to find their emergency fund in their closet. Others snowflake their way to an emergency fund. No matter how you decided to build it, it’s important to begin and to know it will take time to fund.
The most important aspect of an emergency fund, in my opinion, isn’t that it’s there, but how having it changes the dynamic of your personal finances. This isn’t usually talked about, but I think it’s an important aspect to take a few moments to contemplate as it really is the reason that you need to get an emergency fund in place. When you don’t have an emergency fund, you are in a constant reactive mode when it comes to personal finances. When an unexpected expense appears, you are forced to scramble to find money to cover that expense. Chances are that you’ll have to put other important financial matters on the back burner while you try to put out the current issue. This, in many cases, can ultimately cost you even more money. When you don’t have an emergency fund, you end up being reactive to your finances rather than proactive.
It’s extremely difficult to get your finances in order when you are constantly reacting rather than moving forward with a proactive plan. That’s exactly what an emergency fund allows you to do. It’s a security measure that allows you to remain proactive with your financial plan even when the unexpected happens. It’s a mini self insurance policy that helps to guarantee that even when the inevitable stumbling blocks appear, they don’t derail your entire financial plan. These emergencies simply become small bumps that can be immediately resolved.
Having this confidence also allows you to be proactive in getting your finances in order without constantly worrying that your plan is on the verge of falling apart. An emergency fund gives you the needed confidence to make the difficult financial decision that need to be made to get your finances in order. While this confidence isn’t something that can be measured monetarily, it can be the difference of success and failure when it comes to achieving a long-term financial plan.
It’s reasons like these that most financial experts feel that having an emergency fund needs to be addressed at the very beginning for anyone trying to get out of debt or improve their financial situation. An emergency fund is much more than simply a sum of money to be used for unexpected expenses, but a foundation that gives you the confidence and security that bettering your finances isn’t a waste of time because it will be derailed time and again.
For ways to build up your emergency fund, consider these classic articles:
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