No Emergency Fund? These Consequences Might Change Your Mind

“Emergency fund or no emergency fund? Who has the extra money in their budget to set aside for a rainy day?”

“Every day is rainy and there’s always something to be paid right now.”

“You can’t take it with you when you’re gone, you might as well spend it now.”

These are common things people say when the topic of emergency funds come up. Though each of these statements is true in some form, failing to organize your finances for unforeseen circumstances could put you in a really bad position.

No matter what reason you have for putting off the need to save, eventually it comes back to bite you. Many people end up finding this out the hard way.

Isn’t That What Loans Are For?

Sure, there are opportunities out there for you to take advantage of if you’re in a real jam. There are banks and private lenders who will extend a loan to you if you qualify. Bank loans tend to require a lot of paperwork, good credit, and collateral. They also take time to process. Short-term loans provide a quicker solution.

Payday loans are cash advances you can take out despite your credit. You can get approved for several hundred dollars in just a few hours, but if you don’t pay it back on your next payday, you’ll find yourself in a cycle of debt. Installment loans are payday loan alternatives with easy eligibility requirements. If approved you get funds within a day and have several months to repay the balance in full.

Though there are loans out there that can lend a helping hand if you’re in a jam, if your financial emergency is long-term or more than you can get approved for, you’re still backed into a corner.

So What Are the Consequences of Not Saving?

Loans provide a lifeline for quick, short-term personal emergencies, but aren’t the answer if you’re dealing with a lot of debt, can’t repay them, or are dealing with ongoing financial problems. That’s why it pays to save, and here’s what happens when you don’t.

Abuse of Assets

If you don’t have a lump sum of cash stashed away for emergencies, you have to start looking elsewhere to get financial relief. This means borrowing on equity from your home or trying to get a loan using your vehicle as collateral. Who really wants to give up their house or car in the event they can’t repay what they’ve borrowed?

Tapping Into Future Resources

Do you think you can get by with no emergency fund? So, if suddenly you need to do emergency home repairs that cost you thousands of dollars, where will you turn? Many people end up tapping into future financial resources like their kid’s college savings, or their retirement accounts. Failure to replace these funds could leave your children stuck with few options for higher education (or needing to take out a student loan) and the inability to enjoy your retirement (not to mention the IRS and state fees on your income taxes).

Digging Further Into Debt

Some people who are in need but don’t have savings turn to their credit cards to get them out of a jam. They max the cards out and rack up a bunch of interest charges. This ruins their credit history and puts them further into debt. This is compounded by paying interest for months or even years after their financial emergency.

Weakened Quality of Life

When you can’t handle your financial emergencies–which are already stressful–it does nothing but stress you out more. High levels of stress can lead to a multitude of physical and mental consequences and lessen your quality of life.

Judging from these consequences, it would seem that the best course of action would be to begin working towards an emergency savings account.  Even if your funds are already tight it simply pays to set aside a few bucks each week to keep for a rainy day. You never know when you might need a few extra bucks, and while there’s relief out there like loans, liquidating assets, and your future financial accounts, it feels so much better when you’re able to handle the problem all on your own.

10 thoughts on “No Emergency Fund? These Consequences Might Change Your Mind”

  1. Great Aricle!

    Some people state they will use credit cards or HELOCs for the short term But scenario that I like to put in the mix is a doomsday case. Financial crisis, housing crash, war etc where the financial system has to make changes at a larger level. Credit lines and HELOCs can be frozen or closed and that will happen before you are locked out of your savings account

    • I can’t argue with that but planning for the doomsday scenario could be a bit of an overreach as you’d probably end up with problems way beyond paying for your emergency repair.

  2. Do people really plan to take out short-term loans? That’s insane, especially given that loans have origination fees. But more importantly: What if you need the money *now*? Loans can take time, or you might not be able to make it to the bank right away. What then?

  3. In case of some real money emergency, a good credit rating can also help in case you want to use that plastic thingy. But of course, there is no substitute for an emergency fund or rainy day fund.

  4. I think credit cards are the emergency fund. Interest rates on cash are just too low to keep significant amounts of money in a bank account in the event that something crazy happens. If the emergency is significant, equities can then be sold to pay off the credit card. A probable expense fund is a different story, but that wouldn’t need to be the often recommended three months of income.

    • Thanks for the comment. I think you should have access to some funds, but yes, the three month rule sitting basically in cash is not something I really advocate with today’s interest rates.

  5. Retirement expenses are becoming more expensive nowadays thus the need to have emergency funds or smart insurance products like health care insurance or long-term care insurance that can do the heavy lifting in case you’ll need some form of care. Health care costs are steadily rising. In fact, the latest study by Fidelity Investment shows that a couple retiring this year would need $280,000 to pay for health care costs. What’s alarming is that long term care cost is not yet included in that figure. According to Genworth, the annual median cost of staying in a private room in a nursing home is $97, 455. The worst thing that could happen to you is that you’ll become a burden to your loved ones financially and physically. So, better start saving for an emergency fund now to avoid these nasty consequences.

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