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5 Reasons Why Households Don’t Have an Emergency Fund

Over the past year, I have counseled and guided singles and families with their personal finances. Most of them have goals they present to me at our first coaching session. The most common goals include getting out of debt, retirement funding, and college funding.

However, it is very rare that I have a client that has a goal to fund and emergency fund. Why is that?

Proverbs 21:20 states, “In the house of the wise are stores of choice food and oil but a foolish man devours all he has.”

In the world of personal finance, an emergency fund means exactly how it is worded. It is a fund for emergencies. Most financial planners define an emergency fund as three to six months of income or expenses put aside in some sort of savings account.

An emergency fund turns a financial crisis into an inconvenience. Emergencies will occur, for some more frequently. These may include losing a job, a health issue, an automobile accident or unemployment.

So why don’t more households have an emergency fund? Here are 5 reasons why?

  1. Something else always comes up. This may be due to frequent perceived emergencies  that should really be part of the budget such as car repairs or home maintenance.
  2. Never thought about it or flat-out procrastinate. Some people just don’t have a clue. They wander through life and think that something catastrophic like having a car wreck or suffering an injury at work will never happen to them.
  3. Many people rely on debt as an emergency fund. This may include credit cards, home equity loan or credit line. Very dumb, when losing a job, the last thing you want to do  is be in debt.
  4. Not having a budget is probably the BIGGEST reason why people do not have an emergency fund. Without a budget, you don’t have a plan for your money and you are not telling it what to do. If a budget isn’t a priority, than directing money to a savings plan for an emergency fund is probably not high on the “to do” list.
  5. Having no hope at all will defuse any effort for saving for an emergency fund. Proverbs 13:12 states, Hope deferred makes the heart grow sick, but a longing fulfilled is a tree of life.” Someone who has given up hope or has a victim mentality will not save for emergencies. They think they are too old, or don’t make enough money. Whatever the reason is, lack of hope is a personal finance killer.

There are more reasons I could add to the list, but these seem to be the most reoccurring when working with my clients. All of these are mere obstacles and can be conquered by having the right attitude and getting on a solid financial plan that is committed to making savings a priority.

Questions(s): Do you have an emergency fund of three to six months of expenses? If not, why? What are you waiting for?

photo credit: Jason Hargrove via photopin cc

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  • Lishu Ahuja

    I admit I have not been on this blog in a long time however
    it was joy to find it again. It is such an important topic and ignored by so
    many even professionals! I thank you for helping to make people more aware of
    these issues. Just great stuff as per usual!

    locate
    a person search

    • http://www.robertjacobs.org/ Robert Jacobs

      Thanks for your kind words and feedback.

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