When you set up your budget, do you set aside some money into an emergency fund every month? It can be tempting to skip over this contribution, especially if you have your eye on other things to buy. But underfunding this savings account is a bad idea. Living without an emergency fund is like living your life on the hardest setting. Here’s why:

It’s a Stressful Way to Live

Let’s face it — not having the backup of emergency savings is stressful. That’s true whether you’re fielding an emergency right now or not.  

In the thick of it, you have to figure out how you can handle an unexpected expense. That might involve moving around money to make sure you have enough room on your credit card. For others, that might require taking out a personal loan. 

But you could also feel anxious in between your emergencies, always worried about when the next emergency will strike. 

You Might Not Be Able to Borrow at the Rates You Want

When your car breaks down, and it’s the only way to get to work, you might have to borrow money. Plenty of people borrow in special circumstances. However, if you’re living without an emergency fund, there’s a good chance you borrow money frequently. 

Eventually, all those loans could interfere with your ability to get another in the future. That’s because some lenders might see your outstanding personal loans and credit card debt as a red flag and deny you funding. 

If you have a lot of personal loans and credit card debt to your name, going online might increase your options. An online lender like Fora makes it easy to compare your options if you don’t have the best credit history. 

If approved, a line of credit from Fora Credit may offer you the funds you need to handle your emergency auto repair. However, like any personal loan, it comes with rates and fees you need to repay, so it can’t be a permanent replacement for savings. 

You’re Always on the Back Foot

If you’re putting a lot of things on a line of credit or borrowing personal loans, these accounts will affect your debt-to-disposable-income ratio. In other words, a lot of your money will go towards making your minimum payments. 

With all your focus on paying down debt, it’s harder to set aside cash in savings. You might feel like you’re always playing catchup — just as you pay off one loan online, you have to take out another because you didn’t save before the next emergency arrives. 

It Can Change Your Retirement Date

In really big emergencies, you might be tempted to raid your retirement fund. If you have a considerable amount of cash in retirement savings, it may feel like a good trade-off. You can handle your emergency and still leave behind some cash for retirement.

What’s the catch? Well, for one thing, withdrawing from your retirement early can come with some pretty steep tax penalties

For another, it could delay your retirement. Not only do you lose the amount that you withdraw, but you’ll also lose what that amount would accrue in interest.  

Bottom Line: Prioritize Savings

There are a lot of problems that arise from living without an emergency fund. So it’s time you start saving. Put aside whatever you can afford and make it consistent. Even a little bit can help you handle the unexpected with greater confidence.


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