Why do you need an Emergency Fund?
I’m sure by now, you would’ve heard about the Emergency fund. If not, check out my last post, discussing the What, Why, How, When of the Emergency fund.
The reason this post had to be penned is we all might be aware of Emergency Fund, but have you acted upon creating it? Are you taking any emergency seriously? It can knock anyone anytime and it is always wise to have sufficient savings to pay for the unexpected expenses. In the absence of sufficient savings (in an Emergency Fund), you’re sure to get trapped in the stress of taking loans, or use credit cards, or withdraw your high interest yielding savings.
So, here are 5 reasons why you need an Emergency Fund:
1. Medical Emergency:
In this post, I had shared how a friend of mine confessed to taking a loan to cover a sudden medical emergency. Even if you’re healthy (you feel so), any medical emergency can strike you or your family. Even having a Health Insurance does not guarantee that you would not have to pay a single penny against medical expenses. Might be the Insurance does not cover the cost of the sudden treatment you might need to undergo. The dental treatments are way too costly and you can find yourself in big stress to pay those bills.
Nobody wants to face the extra stress of finances, during such Medical emergencies in a family. Setting up an Emergency Fund can help you offset this.
If there is only one source of income in your family, it becomes all the more important to set up an Emergency Fund for at least 6 months. This COVID-19 era and the ongoing recession have proved how Emergency Funds can provide you a cushion. Job-losses, a reduction in salaries, has seen an increase in the last few months. It can take one to 6 months to get the desired pay package back. But you still need to pay your rent, utility bills, and monthly EMI’s. You’ll not be able to meet those expenses unless you have an Emergency Fund.
Even if you’re single, build upon this fund as quickly as possible.
3. You stay far from your parents/family:
Well, I have many friends who stay miles apart from their families, and I have seen them stressed out (financially) during emergencies. An emergency back at home might call for a sudden journey and that could be pretty costly. We all know that last-minute airline bookings can put a dent in your pocket. Hence, this fund will help you sail through the phase easily.
4. Major House Repair:
Even though you may have Home Insurance, but it doesn’t cover everything, that could go wrong. Leaky roofs, deteriorating portions, plumbing repairs, could break your monthly budgets. Having this contingency fund, helps you pay quickly for these unforeseen necessary repair expenses.
5. Car repair:
Well, sudden Car Repairs can be quite expensive. We have felt that dent once when we were in the initial stage of building our Emergency Fund. Even if you have Car Insurance, you might have to pay the deductible. A lot of small and major car repairs can happen and believe me, Credit Cards might not always come handy.
There could be more reasons as to why you need an Emergency Fund. Hence the motive is to be ready for any emergency. Peace of mind is very important when such emergencies knock the door. If you haven’t started saving towards your Emergency Fund, make sure, you start it right away.
You can read on how to calculate Emergency Fund and where to park it here.