Credit Repair 101: Why an Emergency Fund is Important

In a country that boasts a high cost of living and devalued currency, the idea of savings is foreign to many. Whether you can’t afford to save or simply haven’t found the motivation, living without an emergency fund is a risk you shouldn’t take. Read on to learn the significance of savings and how they could impact your life. It’s never too late to take a positive step.

Why Should I Start an Emergency Fund?

The most important reason for savings is protection. Maintaining three to six months’ worth of income will shelter you from credit-busting events such as:

• Unemployment
• Medical emergencies
• Home or auto damage
• Increased cost of living

Preparing for surprises will help you manage them wisely. Don’t wait to pad your bank account.

• Investments are essential to long-term savings, but they won’t do much for your immediate needs. Placing all your assets into long-term savings carries significant risk. Consider the following example:

Gill is a 30-year-old marketing manager. He is committed to retirement savings and places all of his extra income into a 35-year mutual fund. Unfortunately, Gill’s situation becomes dire after a car accident. Facing $27,000 in medical bills, he is forced to dip into retirement savings, costing him 10 percent in penalties and more than $10,000 in state and federal taxes. His lack of planning cost him more than $12,000 in unnecessary expenses.

Manage your savings by creating a balanced portfolio. Talk to a financial planner and divide your funds appropriately.

• Are you looking for a career change? Are you interested in moving across the country? When life changes arise, savings allow you to adapt with few worries. Taking a pay cut in favor of a dream job is doable, and you’ll have the funds to relocate to a new city. Allow your cash to pave the way to a better future. Why limit yourself?
• You know the old saying, “Money can’t buy happiness.” While the adage may be true, money can buy opportunity. Consider the following example:

Will recently accepted a job at a well-known software company. Will’s contract includes a signing bonus and 1,000 shares of company stock. His manager informs him that employees may purchase additional stock for a 10 percent discount. Will would love to take advantage of the opportunity, but has no savings available.

Learn from Will’s downfall by making better choices. Invest in your savings account early. You never know when a windfall could present itself.

• Credit repair. You worked hard to save money. Why not reap even greater rewards? Using your cash to reduce debt will improve your credit utilization and debt-to-income ratio, providing access to a better credit score. Good credit equals big savings when it comes to interest rates, insurance premiums and even employment.

The bottom line: Saving isn’t optional—it’s essential. Take the first step toward financial stability by investing in your future. A strong bank account is the key to long-term success.