(MCT)—It seems like a waste of your hard-earned money: Putting your cash in an emergency fund when all you have to do is pull out your credit card to pay for the unexpected.
But financial planners say there are five vital reasons you should keep a special fund just for emergencies — even if you have to stash at least six months worth of expenses in a savings account that pays almost zero in interest.
You might lose your job. The economy has slowed down recently, losing steam from April to June, the U.S. Bureau of Economic Analysis reported. It is a time for caution. Putting expenses on your credit card if you are laid off can be disastrous. You also have to consider whether you are in a unique occupation with a narrow field of employment, said Patrick Buchanan, president of Private Wealth Management in Lake Mary, Fla. That might mean you spend more time looking for work — and need more in your emergency fund.
You might become injured or sick. Are you adequately insured to cover your loss of income? Buchanan asks. Even if you think you are, you might need your emergency fund to pay for unexpected expenses while you recuperate.
The emergency fund helps diversify your assets. It’s important to have a variety of savings and investments because it protects you from losing much of your money if it is, for example, in one stock, said Matt Saneholtz, a Plantation personal planner who is president of the Financial Planning Association of Greater Fort Lauderdale.
Cash is accepted everywhere. During an emergency you might find yourself in a position when you quickly need to pay for something. Credit cards aren’t accepted everywhere and you wouldn’t want to sell stocks or bonds at a loss to cover unexpected expenses. “There is no substitute for liquidity and marketability in the face of a financial crisis,” Buchanan said.
You sleep better. There’s something to be said for peace of mind: You know you have the money in case something happens.
©2012 Sun Sentinel (Fort Lauderdale, Fla.)
Distributed by MCT Information Services
