A few events last September made me realise why we all need an emergency fund. Not long after I returned from my holiday in Italy with my mother someone pulled out of a side road and crashed into my car. Luckily he wasn’t going very fast and swerved once he saw me coming. Therefore the damage was limited to just dented bodywork. Fortunately it all went through my insurance without incident. I got the car back a couple of weeks later looking as good as new.
…And keep happening
After having to drive a hire car for several days I was glad to get my car back, but then a couple of weeks later it let me down. I had travelled for about an hour from home to do a visit for work. As I turned the car on the radio didn’t come on. I just thought, oh God, the radio has packed up now. I was frustrated that I wasn’t going to be able listen to my podcast on the way home. As I pulled away the dashboard display went blank, except for a few red lights, one of which said ‘P/S’. The steering also became difficult. I turned off the engine and got out the car user’s manual. With a red ‘P/S’ light meant it said that the vehicle should be taken directly to the garage.
when ‘life happens’ we all get stressed
I sat there for a minute or so and considered calling the recovery service. Instead I decided to turn the car on again and amazingly the radio and the dashboard display came on. I drove home, avoiding the motorway in case the car failed when going 60mph. It was a very stressful journey and I was relieved to get home safely. When I did so I rang the local garage and arranged to take it in the following day. They identified a problem with the battery which has now been replaced and I am hoping this has solved the fault.
All the way home I tried to tell myself that it could be worse. Whatever was wrong with the car I had money in the bank to pay for it to be mended. In fact I have enough savings to buy a new car (well a second-hand one) with cash tomorrow. Now I don’t tell you this to brag. I don’t want to have to buy a new car, but I do have the luxury of being able to do so if I need to.
Finding the money
This all got me to wondering what it must be like not to be able to pay for those problems that crop up. I need a car for my job and so couldn’t go without one. I would therefore have had to get a bank loan or a car on credit. This would mean paying interest. If it was just a matter of paying for repairs that would be even more difficult if you didn’t have money in the bank. It might mean paying on a credit card if you have one or getting a pay day loan. Both of these mean that the repairs are likely to cost you more than you actually paid for them.
I felt stressed at the thought of having to get my car repaired or to have to buy a new one, but was at least able to tell myself that both of these options were open to me and within my means. I can only imagine how much more stress I would have felt if that were not the case.
The solution – an emergency fund
Many financial bloggers recommend building up an emergency fund and these events are a prime example of why this is so important. Life is a series of problems that we are given to solve and some, if not all of them, require money. Even if I could fix the car myself I would still have had to buy a new battery to install. We all like to think that things won’t happen and we’ve got much more interesting things to spend our money on than insuring against the future and events which in reality are inevitable.
So if you haven’t got an emergency fund then I would strongly encourage you to start putting away money for one. In the long run it will save you money as you will be able to avoid the interest payments associated with loans and credit card payments. At first you may only be able to save £100, but it’s a start. Eventually you should aim to have at least six months’ worth of spending, so that if the worst happens, e.g. you lose your job, you can survive until you find a new one.