You never know if the next thing to haunt you will be unforeseen expenses. As you do not plan for them while building a monthly budget, you will need savings to fall back on. Experts suggest that you must have some money stowed away that could cover living expenses for at least three months. Unfortunately, some people do not give it even the slightest importance.

An emergency fund is known as a rainy day fund that helps tide you over when you need an instant supply of money and you do not have enough cash. These funds aim to meet unexpected expenses like car repair, laptop repair, medical bills, vet bills and the like.

Building an emergency corpus is crucial because you might lose your job, or your regular budget may not have enough room to cover these expenses. Bear in mind that this cushion is not meant to meet lifestyle expenses like buying a pair of sunshades, a dress for your friend’s big day or party and so on. These funds are only dipped into to meet expenses that catch you off guard.

Reasons why it is imperative to build emergency funds

Here are the top reasons why it is essential to build an emergency cushion:

You lose your job

When you are made redundant or step down before finding a job somewhere else, you will need savings to fall back on. The unexpected loss of a job will put a halt on cash coming in, so you will have to bank on savings to meet your regular expenses. Unless you land a new job, an emergency cushion will cover all your monthly expenses.

In order to stretch your money, you will have to slash your discretionary expenses. It means you will be living off a lean budget. However, you still might need some money.

There is no guarantee that the funds you have stashed away will help you tide over until you land a new job. Therefore, it is vital to seek unemployment benefits. Consider taking out unsecured personal loans in Ireland using these benefits as your income.

It helps meet unexpected expenses

Because you are employed, it does not mean you do not need to create an emergency cushion. You will not be able to meet unexpected expenses if you are living paycheque to paycheque, or if you earn a considerable amount of money, your budget might not have the scope for paying unexpected expenses. You may need it for the following expenses:

Your pet is ill, and you have to cover a vet bill.
You had to undergo dental surgery.
You need to take up money to have repaired plumbing and electrical issues.
Your equipment/machinery/gadget has conked out, and you need money to get it repaired or buy it.
Your car has broken down, and you need money to cover that cost.
The laptop you use for your office work is not up and running, and you need money to repair it to avoid hindrance.

There are several other unforeseen expenses that may threaten your budget. You should have some savings to meet these expenses. However, note that these savings do not include planned expenses like buying a new mobile phone, refrigerator, down payment for your car loan or a mortgage etc. The savings for these expenses must be managed separately.

It will prevent you from falling into debt

Another benefit of building an emergency cushion is that it can prevent you from falling into debt. When you have savings to fall back on, of course, you would not need to turn to direct lenders to take out loans. They can be very expensive because you will have to pay down interest on top of money.

If you are unemployed and borrow money to fund emergency expenses, it can be difficult for you to manage debt payments. Unemployed loans are small, though; they are paid off in full on the due date. Since you cannot pay the money you need from your pocket, paying interest on top of that from your benefits will be impossible.

You will end up keep rolling over the loan, and interest and late payment fees will accrue. This will add up the cost, and then eventually, you will fall into debt. When you have an emergency cushion, you can easily manage to meet your expenses. However, you may still need to take out emergency loans in Ireland, but there are not very high chances of falling into debt.

It provides peace of mind

Having some savings to meet unexpected expenses will provide you with a sense of financial stability. You will feel less worried about your finances. Most of the people have financial stress because of a lack of savings. They spend most nights awake. When you have an emergency cushion, you know unforeseen expenses can be easily tackled.

Further, these savings prevent you from borrowing money, so you do not have to be anxious about being failed to clear your dues on time. And if you have to take out a loan, it will be too small that you can easily manage payments without falling into debt.

To wrap up

Building an emergency fund is highly crucial because it helps fund unforeseen expenses. Unexpected expenses can crop up at any moment, and meeting them from your monthly budget might not be possible. You should have an emergency cushion because this can prevent you from falling into an endless debt spiral.

You should try to put by money even if you live paycheck to paycheck. Try to cut back on your expenses as much as possible and then keep that money in your savings account. Cut down on your discretionary expenses. If it does not work much, you should try to grab new work. A part-time job or freelancing can help you earn more money.

The extra money you earn can contribute to your emergency savings. If it is not enough, you should consider downsizing your lifestyle. For instance, you should try to move out to a smaller house. The rent will be less than the current one. The money you save on rent can go towards your emergency cushion.