While health consciousness is at an all-time high, the incidence of critical medical ailments has also surged. The rising cost of healthcare, too, has become a major cause for concern. To keep diseases at bay, people nowadays take all possible preventive measures, such as eating right, exercising and practising yoga and meditation.
An emergency fund is money that you have set aside to specifically cover any unexpected expenses that may come up. An emergency fund may cover unexpected car repairs, medical bills or other emergency situations. You may also use an emergency fund to help pay your bills when you are unemployed. You should also prepare for unexpected events with a solid plan in addition to your emergency fund.
Why should you have an emergency fund?
Think of it like the fire extinguisher you keep in your house; ideally, you’ll never need to use it—but when you actually have to, you’re so glad it’s there. The same goes with an emergency fund.
One of the initial steps in the financial planning process involves taking care of unforeseen risks or emergency situations which emerge uninformed or need immediate action. Besides getting protected by means of health and life insurance, a person needs to create a corpus so as to meet any other financial risks/expenses – be it for meeting the household expenses for over a month or honouring commitment towards loan EMIs etc.
Many have the habit of taking loans for investing and emergency needs. But, is this a wise thing to do? What are the risks and pitfalls?
An emergency fund is essentially the money that is set aside to cover life’s unexpected events. This money will enable one to live for a few months should anything unforeseen happen, that leads to the need of some money to cover the unfortunate event. It should be quickly and easily accessible on occurrence of such an event.
Besides a savings account, one should also have money set aside for a financial emergency – any emergency which is unplanned and unexpected.