"When the sea turned into honey, the beggar lost his spoon." - Bulgarian Proverb

The Importance Of An Emergency Fund

By , November 1st, 2012 | 37 Comments »

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.

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 becomes small bumps that can be immediately resolved.

Having this confidence also allows you to be proactive in getting your finances in order without the constant fear and 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 which 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.

(Photo courtesy of KrissZPhotography)

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  • prettycheapjewelry says:

    We’re fortunate to have stayed employed fully throughout the recession ; not having to use any saved emergency funds.

  • jay says:

    Well said! Just need to watch the news to see how important it is to have ready cash.

  • laura moreland says:

    ive never been able to have an emergency fund so im gonna have to learn

  • Diane says:

    YES! I had to use my emergency fund when we evacuated for Hurricane Katrina. Fortunately I was able to replace money when I got paid, but while we were in Dallas I was unable to get a paycheck.

  • colleen boudreau says:

    No I haven’t.

  • Vesta says:

    I had one at one time and it gave me a great feeling of security — rebuilding one again is hard! Thank you for this chance to win.

  • Kate says:

    I haven’t been able to save up an emergency fund yet, even though I desperately need it. Switching jobs didn’t help, only hindered (the health insurance was 300% more than the old job). I only switched because I thought I could finally get a raise, something that was frozen at my old company. They just told us all that there will be no raises this year. *sigh* Fourth year in a row for me. But, hey, at least I have a job.

  • Stephanie P says:

    I recently graduated and obtained my first full time job. After paying off my loans and bills, I’m determined to start saving for an emergency fund.

  • Jamie Herda says:

    Yes! Unexpected car repairs and unexpected family funerals.

  • patientsaver says:

    i had stopped by my mother’s to take a shower yesterday,and as i was leaving for home I realized i had no brakes. I was able to cruise to a stop in a parking place, walk back to my mother’s, call a mechanic to tow my car and picked it up just now. Both brake lines and the fuel line were rusted through and had to be replaced. $666. Ouch. Coming from my emergency fund. IMO, you are not in control of your finances unless you have an emergency fund. It s one of the most basic personal finance rules out there.

  • I have been slow at building an emergency fund that lasts longer than 1 year. I have had to use emergency funds for emergencies alot (car maintenance, condo maintenance, flooding issues, etc). I’m starting from scratch again and aim to record my struggles over at http://www.ocbudget.blogspot.com

    I hope i win eventhough i’ve never won anything from raffles 🙂

  • Emily Ploch says:

    Yes. I had to have medical testing done that was really expensive. Since I never have medical problems, I hadn’t used up any of my deductible so I had to pay the full $1000 up front.

  • Marina says:

    I’ve had to use the emergency fund to pay for unexpected vet bills when the pooch got sick.

  • denise says:

    car payment

  • Skrpune says:

    I consider myself very lucky…we haven’t had any major emergencies that have caused us to dip into our EF. In some leaner times, we’ve had to use it for temporary transfers a couple times to cover large tax bills or mortgage payment when due dates fall before pay days, but in those rare cases, I always scheduled an automated return transfer of the temp funds.

  • Gailete says:

    If nothing else, Hurricane Sandy has shown that a jar with change in it isn’t a good safe emergency fund. You need to be able to access the emergency fund when out of your house due to evacuation as well as any other emergency. If you are scared that have easy access to the money in the form of a debit card, have it in an account in your bank or ING account that demands a physical transfer of funds on line. Most people have some type of access to the internet during problems like these. Can you imagine how much the people whose houses just washed away would like to kick themselves if they were keeping large sums of money in their houses and couldn’t get to it? Having $100 in small bills at homes takes care of small minor emergencies, but that bigger fund needs to be somewhere where it can’t get burned, washed away or buried in rubble.

  • Nancy says:

    We are just now getting our emergency fund in order. We should have it by the end of 2012.

  • Bonny says:

    Had to dip in for a tow once.

  • C says:

    Unexpected car issues

  • Sass says:

    Replacement of a catalytic converter. Fun.

  • susan says:

    Car issues always seem to hit the emergency fun! Or, something that needs to be repaired at the house that you weren’t planning on!

  • Diane says:

    It seems like my emergency fund usually goes to safe one of my children. Mostly, they replace it.

  • Lynda says:

    we have had to use our emergency fund when we had to change all four tires.

  • Monkey Mama says:


    The emergency fund concept is such a crucial part of any sound financial foundation. When you don’t have that cash it is just such a domino effect. (Debt, interest, diverting resources from other goals, etc.). & on and on it goes… We have always had a strong cash savings foundation. Not saying I have had the worst luck ever – but have been able to easily deal with prolonged unemployment, moving, losing substantial value in home/unable to sell it, maternity leave, and several medical emergencies and short-term disabilities. Without ample cash savings, any one of these events could have been catastrophic to our finances. No doubt about it.

  • jay says:

    A list, hmm:
    emergency surgery on dog
    surgery on cat
    car battery
    new inverter for our solar panels
    kid’s ER visit


  • I’ve had to use it for small things like car repairs

  • domestic diva says:

    We had to use ours while my sweetie was between jobs.

  • Katy M says:

    Thanks so much for the great advice. Of course I’ve had to use an emergency fund. We’ve needed new tires for the car, have had large vet bills from a sick pet and both my husband and I have lost our jobs (and gratefully found new ones).

  • jay says:

    These discussions always brings up, for us, the conundrum as to what constitutes an emergency. I know this has been discussed before, but it’s still complicated.

  • gina says:

    we have used our emergency fund gone several times, most recently to replace a transmission.

  • Brianne says:

    My husband and I just recently started saving money for an emergency fund. In the past we have had to use credit cards to take care of emergencies so I am happy to have a little bit saved up for the future.

  • Karen says:

    When I paid of my home 3 years ago, I continued to store the same payment amount in an emergency fund at a local account away from my normal funding institution. Recently, I switched to paying that amount to bolster my retirement investments. So, I stopped putting money in the emergency fund, but the money accrued those three years gives me a great feeling of security knowing it’s there.

  • Jamie says:

    Yes, we have had to use our emergency fund several times. Before my wife and I were married, I had to use mine for several months to pay living expenses when I lost my job.

    Once we were married, we had to use a large portion of our emergency fund to pay for medical expenses from a week and a half hospital stay for my wife and our new daughter due to them both getting an infection right after she was born.

    An emergency fund can be large or small, but it is a HUGE relief knowing that the money will be there when you have unexpected things happen in life. Start putting even $25 a week into a fund. Work your way up in the amount you contribute if you can. Then get into a habit of putting the money in the account every week or month and don’t take it out. Before too long, you will have a decent amount, and then your money will start working for you by earning interest, so you don’t have to work as hard to make more.

    A great way to start an emergency fund is with a car/boat/whatever payment. Once the car is paid off, keep putting that same payment amount into a new account. It isn’t hard, because you are already used to making that payment every month. You won’t miss the money. Keep doing this every month and you will have a nice emergency fund before long. Don’t stop the “car” payments once the car is paid off though, or the money that you were paying will “dissappear” on other things in your general monthly budget and you won’t know where it all went.

  • Gailete says:

    Our mortgage is taken out of a savings account that I transfer the payment into the account at the beginning of the month. This year I started padding the amount I transfered to increase what would be in the account. Currently I have $91 stashed there and since I know it would be a huge hassle to the bank tellers for me to pull out that money (it is in an oldfashioned bankbook account that they would have to update several years worth of deposits and withdrawls for me to pull out that money) I let it grow. Not much of an emergency fund, but we try to handle ’emergenices’ out of our regular income.

    Yesterday when paying the bills was the first time in a long time that I didn’t have a mountain of stress about where is the money going to come from to pay them all. We had it and still had money set aside for if and when it is needed, but we actually took in more than enough to pay the bills for the month and that is a great feeling when self-employed! But as much as possible, I’ve been stashing money into savings accounts so when we need it we will have it.

  • Pamela says:

    Yes, we’ve had to use our emergency fun 4 years ago when my husband lost his job. We cut back on many things at that time to help reduce our expenses, but we were so glad to have money that we could easily access when we needed it.

  • Melanie Pierce says:

    I wish we had had an emergency fund when we lost our business… instead we had to survive on credit cards.

  • Angel says:

    This is a great post.
    The emergency fund is a must have. So many of my friends don’t have them and they struggle each time an unexpected expense comes up. I try to make a game of saving extra money and I feel very proud of myself each time I pump more money into my emergency account. Here are a few things that I do that might help others in getting started.

    1.Try to take 1 dollar out of your wallet each day and store it away.
    2.Do not spend change, all of my change is collected, rolled and deposited into my ER fund.
    3. I collect my soda cans and pick up cans off the street & office when possible and collect the money to recycle them.
    4. In addition to collecting my change, I pick up change that I find on the ground. I am always amazed how many people toss out pennies!

    Hope this helps out!


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