7 Reasons Why You Need to Start Building an Emergency Fund Today
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7 Reasons Why You Need to Start Building an Emergency Fund Today

Learn more about emergency funds and why you need to build it.

Emergency Fund

Whether a salaried individual or a business person, your earnings are not just a source of livelihood but also a means to secure your future.

In the beginning, it is advisable to make a budget to ensure that you don’t overspend and can pay your bills on time. But as you progress in your career or business, you should start to think about savings.

Building an emergency fund isn’t as tricky as it sounds. Emergencies can come knocking at your door anytime, and the best way to deal with them is to stay prepared – mentally and financially. There can be numerous reasons why you may need money suddenly. Set a small amount aside each month as a part of your emergency savings plan. Keep at it until you have at least three to four months of living expenses in your emergency fund.

Here are some essential reasons why every adult needs to set aside some emergency money –

  • 1.Medical Expenditure – Medical emergencies can arise anytime for you or your family. Medical expenses may quickly drain your bank account, which is a big reason for building an emergency fund. A good example was the COVID-19 pandemic, when many lost their life savings trying to save a loved one. Instant loans help supplement your emergency fund and enable you to purchase the necessary medicines and medical equipment. Opting for quick credit or instant credit instruments is also advisable when facing an emergency like this.

  • 2.Single Source of Income – Relying on a single source of income may help you attain the living standard you need, but it is essential to have an emergency fund in such cases. If you lose your job due to unforeseen circumstances or suffer a sudden loss in business, you and your family may face financial difficulties. An emergency fund can help you live comfortably for at least two or three months until you find a new source of income.

  • 3.Multiple EMIs – Most people depend on bank loans for primary assets such as a house, a car, or a mobile phone. Paying your EMIs when you have a reliable source of income is simple. All you have to do is set a budget. But if your income becomes unstable or you lose your job, an emergency fund will help you continue your EMI payments for at least a few months. It will help you maintain a good credit record and credit score. Once you find a new source of income, you can resume paying EMIs from your monthly earnings.

  • 4.Living Away from Home – In today’s world, people migrate to different cities and countries to search for livelihood or study in renowned institutions. If you are living alone, it is all the more reason for you to focus on savings and build an emergency fund. It will help if you encounter unforeseen expenses such as house repairs, medical expenses, or a lockdown crisis such as COVID-19 when you need to stock up on groceries.

  • 5.Job Loss – In today’s competitive world, no one is indispensable in their job. During the pandemic, many companies had to make unprecedented job cuts, and numerous people found themselves without a job. In such a scenario, an emergency fund with at least two or three months of living expenses can help you tide over the time between jobs. You need not miss any EMI payments, rent, or utility bills if you have an emergency fund to fall back on.

  • 6.Home Repairs – Whether you live in your own home or rented accommodation, you may be required to shell out a significant amount for plumbing, water-proofing, or appliance repairs anytime. Home repair services or just hiring a handyman is not cheap. Sometimes, insurance covers home repair, but it may be slow to make the payment. Building an emergency fund beforehand can prove very useful to finance an urgent home repair without taking up a loan.

  • 7.Keeping Your Financial Goals on Track – If you have a five-year or ten-year financial goal that you are saving for, an emergency expenditure might hamper your progress. Avoid dipping into your savings by building an emergency fund that you can use to cover urgent expenses.

Building an emergency fund is essential to robust financial planning and ensuring you get the most out of your money. No one can be 100% prepared for emergencies. But planning can help you at least take care of the financial aspect of any trouble. The best strategy is to start early and consistently contribute to your emergency fund. Over the years, you will have a substantial amount to tide you over when needed.

Author Bio:

Shikha Ahuja is part of the content marketing team at KreditBee - India's fastest personal loan platform where professionals can easily avail of personal loans in just a few minutes when in need of quick funds. Shikha writes to create awareness amongst her readers on topics related to loans, personal finance, and budgeting. Being a part of the FinTech industry keeps her on her toes, but she keeps herself grounded through yoga and meditation, and loves to host game nights during the weekends.

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This article has not been reviewed by Odyssey HQ and solely reflects the ideas and opinions of the creator.

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