EXACTLY WHAT DOES THE TERM “EMERGENCY FUND” MEAN?
The term “emergency fund” refers to a sum of money set aside in case of unforeseen circumstances. For emergencies and unexpected events, this money will allow us to take care of ourselves. There is nothing worse than having to deal with an unanticipated situation. Like an insurance policy, think of it this way:
Emergency situations include, but are not limited to:
❖ The inability to find work
❖ A Medical Emergence
❖ Expenses that weren’t budgeted
❖ Expenses incurred as a result of an accident or unexpected event Medical care, auto repairs, and other expenses
❖ An urgent family matter
It’s not always easy to save money. In reality, for the majority of us, it’s the most hardest task yet. Even if it’s unpleasant, it’ll be better than the alternatives, right? Because of my own experience with job loss, family emergencies, and unexpected medical expenses throughout the course of my 18 years in the workforce, I strongly believe in the importance of having an emergency savings account. As a result of having an emergency fund in place, I was better prepared the second time around.
TOP BENEFITS OF HAVING EMERGENCY FUND
1. It keeps your stress level controlled
In the event of an emergency, it’s understandable that you’ll feel anxious and financially vulnerable. You’re living on the “financial” edge if you don’t have a safety net in place, hoping to avoid a financial crisis. Having an emergency fund offers you the peace of mind that comes with knowing that you can deal with whatever life throws at you without having to worry about money.
When my mother’s hernia ruptured and strangled her intestine two decades ago, she was brought to the hospital in the middle of the night. My first contact with an unforeseen life event occurred while I was preparing for a professional exam, and I was on my own to deal with it. Our parents were out of town, and my pregnant sister was 8 months along in her pregnancy.
Having no insurance and no emergency fund made this one of the most difficult times in our lives physically, mentally and financially. Mom’s 11-day stay in the hospital cost us a lot of money. I’ve altered my mind on medical insurance and emergency funds after this one incident. I’m feeling much more confident and prepared now.
2. It prevents you from impulse-buying.
“Out of sight, out of mind” is a well-known adage.
You should keep your emergency funds in this way. You may be tempted to use your debit card to buy something frivolous, like a beautiful cocktail dress or a big-screen TV, if the cash is only a few feet away. Luxury is never a necessity; it’s always an option.
If you don’t have fast access to the money, you won’t be able to spend it carelessly, no matter how much you want to. You’ll know exactly how much you have and how much you still need to save if you put it in a separate account.
3. It prevents you from making poor financial judgments.
Debt may be an option, but how much will it cost you in the long run? Other drawbacks include interest and fines.
Having an emergency fund on hand in the event of an unexpected need can assist avoid the need to take out a loan.
4. You don’t have to worry about risking your long-term investments.
It’s important to stay on track when it comes to financial planning. In the event of an emergency, having an emergency fund will allow you to avoid delving into your other investments. Small business owners should always have emergency money for their firm as well as their personal costs, and they should also have their long-term goals and investments in place.
The Covi19 crisis and recent portfolio evaluations with customers have prompted me to reflect on and consider lessons learned during crises to construct an emergency fund.
WHAT YOU NEED TO KNOW ABOUT DEVELOPING AN EMERGENCY FUND IN COVID19
Building an emergency fund beyond three to six months may be a good idea if your income varies or if you are a single earner. For a circumstance like Covid 19, an emergency fund of at least a year and a half is definitely necessary.
The first step in creating an emergency fund is to create a spending plan. Figure out how much money you’re making and how much money you’re spending each month. In order to keep track of your spending, you might use a spreadsheet or budget tool as a starting point for your calculations. After a few weeks in lockdown, we’ve learned that we don’t need as many items as we once did.
Some of the most important costs include:
✓ Expenses for the home
✓ Costs of living
✓ Premiums for health care services (including insurance)
✓ Servicing a loan repayment
✓ Unavoidable Spending on a Consistent Basis (these are based on individual needs)
Let’s imagine the monthly total comes to Rs 50,000. Assuming we wish to set aside money for unexpected expenses over a period of one year. Rs.6 lacs will be your goal for an emergency fund. This amount may appear insurmountable, as it did to me when I first began putting money aside for emergencies. Remind yourself that Rome was not constructed in a day.
Anything is preferable to nothing. Investing little amounts on a regular basis, such as once a month, can help you work your way up to larger ones. Build your emergency fund with a timeframe in mind, so you know exactly how much and how long it will take you to save. If you stick with it, you’ll get there. The most important thing is to get started and to maintain a regular schedule.
YOUR EMERGENCY FUND: WHERE SHOULD IT BE STORED?
Even if it’s a good idea, storing your emergency savings in a piggy bank isn’t the most attractive option. Consider the following:
➢ Overnight/Liquid Funds
➢ Deposit Recurring (Mutual Funds)
The emergency fund should be separate from any other savings, such as retirement or other plans, and should not have any restrictions on withdrawals that might cause you to lose money or reduce the amount you get back.
THE END OF THE STORY
Having an emergency fund can be a lifesaver when you find yourself in a situation like the current Covid 19, allowing you to stay in a home, put food on the table, pay utility bills and keep up with credit card and loan repayments. An emergency fund can be one of the best things you can do for yourself. It’s easy to save money if you have a plan, keep track of your expenditures, and stick to your savings target.