While paying off high interest debt and saving for retirement are two very important financial goals, everybody’s first primary financial goal should be to have money saved to pay for a financial emergency. There are six particular life situations that all people should have money saved to cover.
An insurance deductible is the amount of money that you have the pay out-of-pocket for an insurance claim before an insurance company will cover a claim. Since this will have to be paid for upfront, it is important that you have the amount of the deductible saved in an untouched account in case you have to make an insurance claim.
Another life instance that you need to have covered is the unlikely event that you will be have to deal with legal matters. This has quite a broad spectrum, but you could need to draft a will, or get a divorce or or hire an attorney to defend your criminal case. No matter what the reasons behind the situation are, legal fees are very expensive and can leave you in financial ruin if you do not plan ahead and have a savings. Even in simple cases, legal fees could cost thousands of dollars.
Another expense that should be covered under your emergency fund are your housing payments. Regardless of how secure your job may seem, there is always risk that you could be laid off. Because if this, you need to ensure that you could cover your housing expenses for a period of time until you get another job. Having at least six months of housing payments saved would be ideal.
Similar to having reserved established for housing expenses, you also need to have a reserve established for basic living expenses. Some basic expenses that need to be covered will include money for food, utilities, and other necessities that you need to pay for if you are unable to work. Having at least six months worth of these expenses saved would be a good idea.
Home and Auto Repairs
Any home or auto owner knows that having to pay for repairs is inevitable. In many cases these repairs are complete necessities and cannot wait. Since these repairs can be kind of expensive it would be a good idea to have a couple thousand dollars set aside to cover any future repairs.
While they can be difficult to predict another item that you should have money set aside for would be medical emergencies. Even if you have good insurance some procedures console cost thousands of dollars out of your pocket. Having money set aside cover these is very important.
In conclusion, saving for retirement and paying off high interest debt is important. However, your first financial goal should be to save to establish a fund that could be used to pay for financial emergencies. There are six life necessities that should be covered in your fund. And if you don’t end up needing money for these situations the money can reallocated to a different expense. But it is better to be safe then sorry.