When life runs smoothly, it’s easy to forget about the importance of an emergency savings fund. Something happening like your car breaking down or your heater failing makes you quickly realize that a rainy day fund is a necessity.

Consider these top reasons for having an emergency savings fund.

1. Stops the cycle of more debt

Without back-up savings, one emergency can cause you to reach for plastic to cover the costs, and this can wreak havoc on any debt reduction plan you currently have in place. When you’re desperate for cash, you’re more likely to fall into debt traps. Having a fund you can draw from when disaster strikes means staying out of debt quicksand.

2. Saves your assets

Long-term savings vehicles like retirement funds, certificates of deposit (CDs) and stocks and bonds are assets meant to serve you in the future and should ideally not be used as liquid savings to cover emergencies. There are consequences when you withdraw money prematurely from such accounts, including early withdrawal penalties. You also lose the savings in these accounts, which is particularly significant with retirement accounts, which only allow you to save a certain amount each year.

3. Provides peace of mind

When your emergency fund is low or empty, every time your car engine makes a strange rattling noise or your tooth starts to ache, you’re likely to tense up and start imagining the worst. If you have a healthy emergency savings, you’ll stay alert for problems but won’t find your heart racing with dread at the slightest sign of trouble.

4. Ensures optimum healthcare

If you have money on hand when a major health problem arises, you can consider all of the potential treatment options, despite the costs. A dry savings account means you’ll have to go with whatever care is offered you under your insurance plan, and even then paying deductibles may become a problem.

5. Leads to proper home repairs

When money is scarce but the house needs repairs, you’re more likely to opt for inexpensive band aid fixes that jeopardize the integrity of your home, such as patching a leaking roof rather than replacing it. Or you may find yourself unable to fix or replace certain home items because you lack funding — for instance, going without an air-conditioner in the sizzling summer heat or living without a dishwasher because you can’t afford to fix such appliances.

6. Gives you time to find a good job

If you lose your job but have savings to fall back on, you’re more likely to take the time necessary to find the right replacement job rather than grabbing the first offer that comes along.

7. Allows you to travel at will

If a friend or family member who lives out of the area has a happy occasion such as a wedding or on a more sad note, a funeral, a rainy day fund allows you to quickly book a flight and hop on a plane so you can be with those you love.

8. Keeps Uncle Sam happy

If on April 15th you owe Uncle Sam his share, an emergency  savings fund allows you to write him a check and keep yourself out of hot water with the government.

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Photo Credit: coolmikeol