Suffering job loss or a loss of income, waiting for disability benefits to begin, or needing a major home repair are just some calamities where an emergency fund can save you financially.

To appreciate the value of an emergency fund, consider how else you would support yourself in the event of a costly, unexpected event.

Avoiding further financial strain

Dipping into your mutual fund retirement savings could set back your long-term goals, especially if you’re forced to withdraw funds when the markets are down. Using credit cards or a line of credit means taking on debt at a time of financial hardship. Where an emergency fund helps you solve the situation, these other methods introduce another financial challenge.

Meeting the need

A common guideline is to provide for three to six months of living expenses, typically held in cash-equivalent mutual funds – but the amount varies by need. For example, a self-employed single parent typically needs a larger emergency fund than a couple with both spouses employed.

Building the fund on a budget. Some people recognize the need but haven’t built a fund due to other financial demands. In this case, a solution is to start slowly. You can set aside a specified amount each month or pay period and perhaps give your fund a boost when you receive a tax refund or an annual bonus.

At the very least, an emergency plan. Others don’t have an emergency fund because they prefer to invest the money in mutual funds instead of tying up a large sum in low-interest savings. While it’s true there’s an opportunity cost, the fund’s purpose is to manage risk, not maximize growth. However, anyone who doesn’t want to commit a large sum to low-interest savings should establish an alternative emergency plan they can count on, which may still include a smaller emergency fund.

Having an emergency fund not only provides a safety net to cope financially if an emergency arises but also gives you peace of mind knowing you can handle an unexpected situation or event.