Are you financially secure? Are you ready to financially tackle any unexpected situation life throws at you? The answer to these questions will help you fix your financial goal. Ideally, besides building wealth, your aim should be to save money for an emergency, such as a job loss, a medical emergency, or a need for immediate repairs. You never know what life will throw at you, but you can protect your finances by setting aside money for an emergency.
These funds are different from your savings and are also known as Contingency Funds. Ideally, you should have at least one year of living expenses saved in your emergency fund. Having a backup fund always ensures that you live your life financially stress-free.
You do not have to look way back to realise why it is crucial to have an emergency fund; see what the pandemic did to all of us. Thousands lost their jobs, got infected by the virus, and bought expensive medicines to survive. To safeguard critical issues like these in future, you must start building your emergency fund.
However, when to use an emergency fund is still confusing for various people. Therefore, here are all the scenarios for which considering your contingency fund could be plausible:
Sudden Job Loss or Unable to Work
Today, the market is volatile, and with ever-evolving technology, you never know when your job will be redundant. Thus, in the event of an unexpected job loss, or even in the more dreadful situation of being unable to work, this corpus fund will assist you in overcoming emergencies. Experts always suggest keeping the fund at least equal to your one year of living expenses. So, all your rent and other expenditures are covered, and on the other hand, make sure your debt does not increase.
In the case of home repairs, the cost can be huge and using your regular money to fix it can dig a hole in your pocket. Hence, do not let your finances and daily budget get disrupted due to urgent repairs. Use your contingency funds instead and keep building your wealth. However, use the emergency fund when it is necessary and after using it, make sure you put the money back as it was before.
Even if you have heavy health insurance for your family, it takes time to make a claim. Hence, use the corpus of money till your claim passes. In case of emergencies, even with cashless claim medical insurance, it takes 3-4 days before your claim gets settled. Thus, you should not borrow money and increase your liabilities; instead, use your emergency funds. Make sure you put back all the money once your claim gets settled.
Urgent Family Needs
How many times has it happened that your family needed something immediately, such as paying tuition for a course you or a family member wishes to take, or your air conditioner broke down in the middle of a hot, humid day? Well, instead of using your credit card, use your emergency fund. Using your credit card will increase your debt, and probably you will pay it back through EMIs (Equated Monthly Instalment), an extra expense that can flatten your budget. Hence, use these funds and avoid putting a load on your monthly finances.
The uncertainty of life goes beyond everything. A good employee today could be jobless tomorrow, or a healthy person could get infected by viruses and whatnot. The list is never-ending. Hence, instead of going with the flow, take a right turn and build your emergency fund.