Life is a long journey with road maps and unexpected turns. Every moment is ambiguous and can turn us upside down in unexpected situations. The possibility of huge expenses may arise in case of emergencies, including medical situations, job loss, car breakdown, losing a close relative, etc. It is thus better to be prepared with an emergency fund than to regret it at such moments of desperation. These situations are the hardest to deal with emotionally as well as financially. However, having the financial strength to overcome hardships makes it a little easier than ever. This is where our emergency fund assists us.
An emergency fund is considered a vital ingredient in any balanced financial planning, whether you are budgeting monthly or annually. It acts as a safety net that helps you in unexpected situations when other resources are unavailable. This kind of saving is not just saving but securing the future.
Chances are, if you did all that planning and your financial goals aren’t very well defined, many of you will have trouble sticking to the plan you created for your emergency fund. But remember, that’s the whole point: to be there when you don’t have any other choice. So, staying disciplined about your emergency savings today will reward you financially and give you peace of mind down the road.
Why Do You Need Emergency Savings?
- Unemployment: The job industry is growing more competitive with each passing day. The takeover of artificial intelligence has decreased job security in several sectors. During the COVID-19 pandemic, many people lost their jobs, going from stability to struggling. To avoid such cases, one must save a part of their income for the struggling future.
- Natural Disaster: Any calamities can cause unexpected damage, including loss of homes and lives.
- Medical Emergencies: Unexpected accidents or chronic diseases require a hefty amount of money. What might seem like an affordable bill in the beginning starts piling up, and you might end up in huge debt.
Perks of Having an Emergency Fund
- If you start saving early, at least from your 20s, by the time you reach your 30s or 40s, you’ll have less stress. Being financially secure will bring peace of mind.
- There will be enough flexibility in your life regarding further financial choices.
- Having a good financial plan and an emergency fund will help you stay debt-free.
How to Start Saving and How Much to Save?
- The choice is up to you whether you want to make a yearly or monthly analysis depending on your income. If you’re financially independent and somewhat stable, start investing or saving in monthly systematic investments.
- Save money to support the expenses of at least 5-7 months without outside income. This way, in times when you have no job, you can focus on finding a new one rather than worrying about survival.
- Start with a small amount and increase it gradually.
- One of the most important things to remember while saving is not to spend money unnecessarily. Limit your spending only on things that are useful and important.
- If you’re having trouble keeping your savings due to your spending habits, set up monthly transfers from your checking account.
Where to Keep Your Funds?
- Start with investments and opt for SIP (Systematic Investment Plan) for consistent and disciplined saving strategies.
- Insurance policies are a great way to save money and are effective for risk management, transferring your risk to the insurer. Health, life, and long-term insurance will limit the spending of your funds, saving you from going into debt.
This might take time; sometimes, it might not work, but remember to be consistent and regular for a better future.
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