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Whenever you look at posts about financial planning and advice, they’ll almost always tell you that you need a healthy savings account, but a lot of people ignore that advice, especially if they’re a bit younger. They think that savings are only a big concern later in life when you need to start thinking about retirement. All of the big costs that you’ve got to deal with like buying a house or raising a family aren’t any of your concern yet so there’s no need to have a big savings account.
The thing is, one of the reasons that people always advise you to keep your savings topped up is that you never know when you’re going to be hit by a financial emergency. Life is always throwing us financial curve balls and if you aren’t prepared for it, you’ll end up borrowing money. If you get into debt from a young age, you’ll have it hanging over you for years to come, the interest payments will start mounting up, and you’ll find yourself in a very bad financial position. When it does come time to start saving for retirement or trying to buy a house, you won’t be able to manage it because you’re only just keeping your head above water as it is.
If you’re still not convinced and you think that you can do without that emergency buffer, you probably haven’t considered these unexpected costs that could hit you at any time, without warning.
Nobody plans to get sick but it’s going to happen at some point, whether you like it or not. Fingers crossed, it’ll only be something minor that is covered by your insurance. But what happens if you fall seriously ill? All of a sudden you’ll find yourself unable to work and once your sick days run out, you’ll have no income. Then you’ve got to pay any extra medical costs that aren’t covered by your insurance which is going to add up to a lot of money. If you’re putting all of that on credit cards, you’ll soon end up with a massive debt that will take you years to clear.
While you might not be planning on starting a family soon, you never know what could happen. If you get pregnant by accident, you’ll have to start planning for the costs of raising a child. If you don’t have anything to start with, 9 months isn’t long enough to save up all of the cash that you need. Having a healthy savings account gives you a bit of breathing room so you can cover the costs for the first few months while you save up the rest.
This isn’t something that anybody likes to think about and right now, you’re probably thinking it will never happen. Unfortunately, the harsh truth is that even the happiest of couples can grow apart and eventually end up separating. If that happens, you’ll need a divorce lawyer which comes with a hefty price tag. Adding financial instability to an already difficult time will make things so much worse.
The financial crash in 2008 showed the world just how quickly things can change. People all over the world that had been insecure jobs for decades suddenly found themselves out of work when companies started going under. It would be naive to think that something like that could never happen again. Even when the economy is good, there’s no guarantee that the company you work for isn’t going to hit hard times. Even if you don’t lose your job completely, they might have to cut your hours down. Trying to get by on reduced or no income until you can find more work is going to be a real struggle if you haven’t got a buffer to fall back on while you’re job hunting. There’s no telling how long it’ll be until you can find another job and if you’re living on borrowed money for that whole period, you’ll start your new job in a very bad position.
Imagine you’re working in a job that you absolutely hate and then one day, you see an advert for your dream job. You decide to apply for it and you get it. The only thing is, it pays quite a bit less. You know that you’ll be able to get back up to the salary that you were on in a few years once you progress, but until then, you have to live on a lot less money. In that situation, you’ve got to decide whether you can afford to take the hit and accept your dream job or carry on somewhere that has no new opportunities or isn’t in an area that you really want to work in. Having a good amount of savings means that you are free to take that job and start making moves toward the career of your dreams, rather than staying put and being unfulfilled.
Family Members In Trouble
Even if things are going great for you, what do you do if somebody in your family is in need of help? Having an extra person stay with you is going to cost you a lot of extra money and if you’re hosting somebody that’s in a difficult situation, they might not be able to contribute at the moment. They’ll get the money back to you when they’re straightened out but for now, you’ve got to bear the burden of the extra cost. Without a good emergency fund to fall back on, you won’t be in a position to help your loved ones in their time of need.
Identity theft is more common than you might think and if you have your bank account cleared out, it can take a while for the bank to sort it out and return the money to you. You’ll probably have to put all of your usual accounts on hold for a while as well. In that situation, an emergency fund can be a real lifesaver.
Savings accounts aren’t just for people in their 50’s saving for retirement. You never know when you’ll need that extra money to start putting it away now.