Importance of Emergency Fund
1) Creating the safety net:
An emergency fund provides individuals with a safety net, ensuring future security. By allocating a portion of their net income to this fund, people gain relief knowing they have financial support when emergencies arise.
Safety net is required under given condition:
a) Job loss:
Losing the primary source of income can create significant financial strain in one’s life. Responsibilities like paying EMIs, being the sole earner in the family, covering rent, utilities, and groceries may become challenging. It’s advisable to set aside savings equivalent to at least 3 to 5 months of expenses to navigate through such uncertainties.
c) Medical bills:
Medical bills can be substantial expenses in today’s world, with hospitals often charging amounts that could equal or exceed an entire year’s salary. Even with health insurance, coverage may not suffice to meet all expenses. Therefore, it’s crucial to have a certain amount of money saved in your bank to address health emergencies effectively.
d) Maintenance cost:
Maintenance costs are frequently overlooked when purchasing homes and vehicles, as we often consider them as one-time expenses. However, these costs can accumulate significantly over time and may exceed what can be comfortably covered by monthly income. Having an emergency fund specifically allocated for maintenance expenses is essential to ensure you can address these unexpected costs without financial strain.
