Life can be expensive at times. Unexpected expenses are truly… not unexpected. Events like a car repair, small medical bill, or broken cell phone are likely to happen occasionally.
Recently, a popular stat has inspired many articles and tweets — 40% of Americans can’t cover a $400 emergency expense.
But there are many examples of situations where you need an emergency fund.
Credit cards often have interest rates over 20% APR, and payday loans are even worse. A home equity line of credit (HELOC) can be lower interest, but any form of debt can compound if left unpaid.
Even if you have some investments, there’s volatility that cannot be predicted with certainty. This is an issue for retirees especially, since they want to avoid being forced to sell an investment after a large drop in market value.
Most often, people are referring to the stock market when they use the term “volatility,” but the concept applies even more broadly. If you own rental property or a business, those investments can be affected by market volatility too.
Of course, unwanted and unexpected job loss can be more of a challenge financially. But, even if you’re choosing to change jobs on your own volition, it’s best to be prepared for the transition.