4 New Reasons You Need an Emergency Fund

You need an emergency fund: You've probably been told this plenty of times before, and you maybe haven't taken it as seriously as you should have.

Well, some fresh data from 2017 proves that … yes, you really do need an emergency fund! If you've delayed stashing that money away, now is the time to start.

1. Potentially higher health care costs under AHCA

Let's start with a big-ticket item: health care. Under the current administration, the American Health Care Act (AHCA) is adjusting several items from its predecessor, the Affordable Care Act (ACA), otherwise known as Obamacare.

Depending on several factors, including your age, and income level, and where you live, you may end up paying more or less under the AHCA than you did under the ACA. Those who are older, have a lower income, and live in an area with higher premiums are likely to pay more under the AHCA. For example, while a 40-year-old resident of Cherry County, Nebraska making $50,000 per year would pay 21 percent more in health premiums under the AHCA, a 27-year-old resident of Tulare County, California would pay 26 percent less.

To get an idea of how much you would in pay under the AHCA, use this predictor tool from the Kaiser Family Foundation and get more information from your current health plan provider. Having an emergency fund would allow you to be ready to cover not only medical emergencies, but also the potential hike in those health care premiums.

2. Worrying about finances makes you less productive at work

According to recent data from the Employment Benefit Research Institute, three in 10 American workers claim they worry about personal finance at their workplace. Even worse, over 50 percent of those workers believe that time spent fretting about money is making them less productive for their employers.

If you belong to this group of workers, then you would regain peace of mind at work with an emergency fund. By knowing that you could cover your necessities for three to six months if you were to lose your job, you would be able to focus on performing better and increasing your chance of a raise.

3. Average credit card APR is on the rise

What do you do when you don't have money to cover surprise expenses, such as the water heater breaking or the car going on the fritz? Most people without an emergency fund turn to a credit card.

Well, here is some bad news: A CreditCards.com survey found that the average credit card APR had reached a record 15.89 percent as of June 14, 2017. If your credit score is less than perfect, you can expect to pay an interest rate even higher than that average.

Remember, the whole point of having an emergency fund is to lower your financial risk. By using a credit card as an emergency fund, you're only adding risk to your personal finances.

4. Opportunity only comes around so often

Many people think of an emergency fund as a "rainy day fund." However, others think of it as an "opportunity fund" — a way to never miss out on a great opportunity for want of cash. And while an emergency fund should never be thought of as play money, if you have enough saved, you can use some of that cash to fund a special opportunity that may not come again. (See also: Why "Opportunity" Funds Are the New Emergency Funds)

Here are some examples:

  • You have the chance to refinance your mortgage to a lower rate (and lower your monthly payment!), but you don't have any savings to cover the necessary $2,000 to $3,000 closing costs. Luckily, there's enough in your emergency fund to help you go through with the refi.

  • You've had a lifelong dream of taking a two-week trip around Europe, but the tour company that you like is a little out of your price range. They offer a limited-time discount, and you pull some money from your emergency fund to take that trip of a lifetime.

  • The refrigerator that you've had since college has been jacking up your electricity bill for years. You discover that you could slash your monthly bill by 40 percent and get an energy rebate from the state government if you were to buy a more energy-efficient model. You don't have the money upfront, and the rebate expires next month … but there's enough in your emergency fund.

The list goes on. An emergency fund is usually a building block to achieve financial security, but it could also allow you to gain financial freedom. Once you gain the discipline to save enough to cover your necessities in case of an emergency, you may be able to continue to save in case of a seizable opportunity — or even a lifelong dream.

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4 New Reasons You Need an Emergency Fund

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