An emergency fund—money dedicated to unexpected expenses—should be part of every household budget. When things go south, you won’t have to go into debt to fix them. While the fund might not be enough to completely cover truly serious emergencies, it will at least reduce the amount you have to finance.

During your working years, an emergency fund is a big help. During retirement, it’s crucial to your budget. After all, you’re living on a fixed income. You can’t take on a little overtime to help pay for that transmission repair.

Here are six reasons why an emergency fund is essential.

1. To combat inflation

Too often we base future budgets on our current ones, forgetting that most things will cost more as the years go by. As a result, we’re likely to underestimate how much we’ll need to live on in retirement.

Even if food, shelter, and utilities cost more than expected, many can still manage. They might not be able to afford many extras, but they’ll manage. However, if something goes really wrong—a sick pet, broken appliance, high medical co-pays—some people rack up credit card debt or withdraw extra money from their retirement funds. Neither of those things is good for long-term financial security.

[ See: How to Figure Out How Long Your Money Will Last in Retirement ]‍

2. To cover medical costs

Medicare doesn’t pay for everything. For example, it won’t cover things such as hearing aids, glasses, or routine dental care. Many Medicare Advantage plans do cover those things, but you could be on the hook for deductibles and copayments.

Expenses related to health issues can really add up, too:

• Special foods for specialized health issues
• Extra ibuprofen or acetaminophen after you do too much yard work (better throw in a tube of that Icy Hot, too)
• Extra gasoline (or rideshare costs) to get to medical appointments
• Meal kits or takeout if you’re not well enough to cook
• The cost of a housekeeper (or a yard worker) if you’re no longer able to do this work yourself
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3. To pay for household repairs

A burst pipe or a defunct appliance can put a serious hurt on your finances. Yes, it’s scary to think how much it would cost to call a plumber or replace a refrigerator. Much easier to just cross your fingers and hope for the best.

Hope is a lovely thing, and indeed that fridge might last another dozen years. But it also might not. Keep hoping, but also keep setting aside some bucks.

4. To modify your home 

Most adults prefer to age in place rather than move in with their kids or into assisted living. However, relatively few U.S. homes are accessible from the start; instead, people have to modify bathrooms, add ramps and install high-tech solutions that help them live safely and comfortably.

You’ll likely have to pay for most or all of this work yourself, although some Medicare Advantage plans will cover certain home modifications, such as bathroom remodels. Few of us like to think about needing a roll-in shower or a wheelchair ramp. But it’s always a possibility, so having an emergency fund will help defray the cost.

[ Read: What to Know About Independent Living Communities ]‍

5. To protect against market woes

Turmoil in the stock market could have a serious impact on your retirement fund. Most of these dips are temporary. But if it’s a really big drop, best to leave the fund alone and give it a chance to rebuild. (Remember that thanks to the Secure Act of 2019, you can now wait until age 72 to take a required minimum distribution from an IRA.) 

But suppose a dip happens right when you planned to (finally!) buy a new mattress or visit the grandkids? You’d planned to pay for this with a bigger-than-usual retirement fund withdrawal, but now you’re not so sure. Having an emergency fund could pay for some if not all of the planned expenses. 

6. To let you help your family

Some retirees want to—or have to—give money to their adult kids. One poll showed that nearly 30% of those aged 25 to 40 are getting help from their parents. The same poll indicates that 55% of older parents give financial assistance to their grown kids at least occasionally. 

Maybe that means mostly supporting your grown kids because they never found decently paid work after that pandemic layoff. Possibly you’re just keeping your kids on your cell phone plans or offering to pay for a grandchild’s voice lessons.

That’s very kind. However, you should do these things only after you’ve put on your own oxygen mask, financially speaking. A robust emergency fund lets you give from the heart without worrying about wrecking your own finances.

How to save an emergency fund

When making your retirement budget, include an “emergency fund” category. A well-written retirement budget will let you know how much you can afford to put in each month without feeling too much of a pinch in other categories.

The easiest way to save is to automate a monthly transfer into a bank or credit union account that’s separate from the one you use for daily expenses.

Finding it tough to set aside money each month? These resources might help you find “extra” cash for your emergency fund.

• “12 Ways Retirees Can Save Money”
• “How to Pay Off Debt in Retirement”
• “How Retirees Can Lower Their Bills”
•  “15 Government Benefits That Can Help Seniors Save Money”

‍You can always start small. For example, you could say “I want to save $1,000 over the next six months.” That works out to about $5.55 a day. Could you find that much wiggle room in your spending?

If things are really tight, try it this way: “I want to save $500 over the next 12 months.” That’s about $1.37 a day. Looking for small ways to cut expenses could help you save that money. Once you get started, you’ll probably want to keep going.

Finally, resist the temptation to use the emergency fund for a non-emergency. The cost of a nice dinner out should come from the “entertainment” category of your retirement budget. 

Remember, the point of having an emergency fund is not to spend it. It’s to save it for when things go sideways.

[ Keep Reading: Financial Risks That Make It Difficult to Age in Place ]

This article is provided by NAIFA education partner Carefull.