The Benefits of an Emergency Fund

    When you’re struggling to make ends meet, and there isn’t much of your paycheck left at the end of the month, it can feel really good to spend what’s left on yourself for a little retail therapy.

    While this will give you a temporary adrenaline boost, it won’t change the fact that you have no financial safety net to fall back on should problems arise. You can change that today by putting your leftover cash into an investment vehicle that suits your risk tolerance and letting it compound over time. You’ll want this emergency fund to cover three to six months of basic expenses. It should also be invested relatively safely with enough liquidity for easy access. Here are three suggestions to consider:

    • Money market funds
    • Short-term bond funds
    • High-interest savings accounts

    After a handful of years, when your balance has grown into something meaningful, you’ll thank yourself for the optionality it provides. Still not convinced? Let’s get into it.

    Sleeping Well at Night

    The biggest benefit of having an emergency fund is being prepared for the unexpected. It turns disasters into minor inconveniences so you can carry on with your busy day. Having to replace your car or repair your home without the necessary funds can lead to months of hardship and anxiety. But a quick ride to the dealership or call with a contractor is no more than a blip on the radar.

    Make no mistake, nobody’s perfect and life always finds a way to keep you humble. It’s completely normal to fall behind and need a helping hand along the way. If you are struggling, don’t settle for the endless pressure. Carefully consider your options for borrowing cash fast to get yourself out of trouble.

    Taking Chances

    Of all the doors an emergency fund can open for you, the ability to take risks is by far the most promising. It lets you take control of your future by pursuing projects that interest you, knowing full-well that your cash reserves will see you through failed initiatives until you regain your footing.

    If one of your new business ideas starts to gain traction, the upside is limitless. Once the word gets out into the general public, your project will take on a life of its own, and you’ll be a better person for it. All because you gave yourself the freedom to come up with a brilliant idea and do all you could to follow through.

    Keeping Out of Debt

    From a health perspective, an emergency fund will shield you from borrowing more than you can afford and exposing yourself to serious mental decline. The weight of constantly being in the red not only puts you at risk of depression, it also encourages poor nutrition to supply the brain with dopamine to offset the difficulty of scraping by to survive. If you are in dire need, limit yourself to payday lenders genuinely interested in helping you through a tough time.

    Though it may feel like drudgery at first, building up an emergency fund is the best insurance for your peace of mind. Be diligent, hit that six-month number, and any roadblock life puts in your way will be no match for you.

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    • Tom La Vecchia

      Founder of New Theory & X Factor Media

      Founder and Publisher of New Theory Magazine and Podcast. Serial Entrepreneur who loves wine, cigars and anything that allows to people to connect and share experiences.

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