You need an emergency fund.

This represents one of the basic pieces of personal finance advice. Even so, many people don’t believe that an emergency savings are necessary.

If you want to improve your chances of achieving financial freedom, though, you need to change your mindset and acknowledge that an emergency fund is essential.

Here’s Why an Emergency Fund is Essential. Read These Now!

To Deal with Unexpected Expenses



One of the best reasons to have an emergency fund is that it can help you deal with unexpected expenses.

A little more than two years ago, my basement flooded just before Christmas. Since the cause was groundwater, and not a burst pipe, our homeowners policy didn’t cover it. We had to come up with close to $3,000 to take care of the situation.

The fact that we had an emergency fund meant that we didn’t have to turn to debt to pay our costs.

From car repairs to new appliances, your emergency fund can supply you with the cash flow you need when something expensive and unexpected crops up. Rather than straining your budget, you can just dip into you emergency fund to take care of the expense.

To Prepare for Financial Setbacks

Your emergency fund can also help you prepare for financial setbacks. A job loss or a huge medical bill can cause serious financial problems.

If you have an emergency fund, though, you can reduce the impact.

If you lose your job, your emergency fund can help supplement your unemployment benefits. You can also use your emergency fund to cover some of your expenses while you are on extended leave from work for a medical condition, or to help you pay hospital bills.

While your emergency fund may not be large enough to completely cover your needs during major financial catastrophes, it can reduce the impact to your long-term financial situation. Your emergency fund can mean the difference between being able to recover in a reasonable amount of time and being financially devastated.

For Financial Flexibility

Your emergency fund also offers a certain amount of financial flexibility. With your emergency fund, you have more options. It might mean that you can make do with a part-time job for a while as you start the side gig of your dreams. It can also mean that you have a little leeway in terms of time as you search for a preferred job.

The flexibility can also provide you with options when it comes to dealing with expenses.

You can choose to put the expense on a credit card, earn the rewards, and then pay it off (you don’t want to pay interest!), rather than get stuck wasting your resources on interest payments.

For Peace of Mind

An emergency fund also provides financial peace of mind. When you know that you have options, and that you are prepared for the unexpected, you are less likely to worry about money. You can face the future with calm, and that reflects in all aspects of your life.

Financial peace of mind helps in the following areas:

Health: Your physical and emotional health can be affected by stress and anxiety. When you are worried about money all the time, it can lead to health problems. Heart problems, depression, and other issues can all be associated with stress and anxiety. Relationships: Money worries can put strain on relationships. Stress about your financial future can lead you to fight with your life partner, and show impatience when dealing with your children (and others). With an emergency fund providing some stability, you can focus on keeping your relationships healthy. Taking Risks: With financial peace of mind, you can also feel more comfortable taking certain risks. You can feel more comfortable with investments, since you know you have a core emergency fund to back you up. It’s also possible to feel more confident about starting a business when you have the financial peace of mind that comes with an emergency fund.

Related: How to Get Started With an Emergency Fund

Bottom Line on Needing an Emergency Fund

An emergency fund is essential to your financial health and well being. Your emergency fund can help you avoid financial catastrophe, and give you peace of mind about your financial future.

Do you have an emergency fund? Does it help you feel more confident about weathering a financial setback?