A basic tenet of personal finance that gets short shrift but can dramatically improve your money life is having a cash emergency fund.
"Tens of millions of families struggle to afford a car repair or dental treatment because they lack sufficient emergency savings," Stephen Brobeck, executive director of the Consumer Federation of America.
It sounds so simple: Put away some money for a rainy day. Yet so many people don't do it — perhaps because they don't have a good answer to a fundamental question: Why?
Here are some good answers to that question:
Avoid finance charges. Cars break down, roofs leak and teeth need crowns. If you have the cash to pay for life's curveballs, you'll avoid putting charges on a credit card and paying finance charges, or, worse, taking a payday loan. If you can't pay the bill at all, it will likely go to collections and damage your credit rating.
Lower insurance costs. If you have cash, you can choose higher insurance deductibles for auto and home policies, significantly and permanently lowering your annual insurance costs.
Say no to extended warranties. Similar to insurance, having cash for repairs and replacements of appliances and gadgets allows you to forgo pricey extended warranties.
Job loss. A robust emergency fund can help bridge the financial gap until you can get income flowing again.
Sense of control. Some of the worst money worries never materialize but are conjured in our minds. Having even a few thousand dollars stashed away can relieve anxiety.
Irregular income. For those with up-and-down income — those paid on commission, for example — a cash cushion can even out high- and low-income months.
Give yourself options. If you're broke, you might make decisions you later regret, such as not visiting a sick relative.