If you don’t have enough savings to ride out a crisis, you are facing a financial risk that could have been avoided
Life is full of unexpected events. For instance, the recent heavy monsoon spells wrecked people’s lives and homes. While their day-to-day routines were thrown out of order the bigger blow has been to their finances. The impact of unexpected floods can affect even the best laid financial plans. That is why such sudden expenses are known as emergency expenses. Financial emergencies can come in many shapes and sizes – unplanned repairs at home, car battery dying abruptly, medical emergencies and natural calamities. Instead of blaming it on fate, adequate planning for financial emergencies can help you guard your financial life.
Many of these costs towards emergencies cannot be predicted, but nearly anyone can face these kinds of emergencies throughout their lives. While one cannot wish away disasters, one can plan for them and save money to face these events with an emergency fund. An emergency fund is money that you have saved to help you cover unexpected costs that come your way.
It’s hard to say exactly how much an emergency fund should have because the amount of money you might need is based on personal factors, so it’s different for everyone. Moreover, an emergency fund comprises of both regular, predictable expenses and those that are unforeseeable. The predictable expenses, such as those on food, transport, EMIs and such can be gauged from your monthly budget, especially the expense column in it. The unpredictable expenses are the emergencies – medical expenses, car breakdown or home maintenance.
You could make a start by setting aside 3-6 months of household expenses and add an addition sum to meet unexpected emergencies. Like in case of financial goals, decide on a sum needed to create the emergency fund and the time frame in which it needs to be achieved to start saving and investing appropriately. Since the very definition of emergency means unexpected, you should be able to access your funds at any point without worrying over any charges while accessing it. Ideally this money should be in your savings bank account, liquid funds or short-term deposits.
Having funds to meet unexpected situations builds financial resilience and empowers you to make positive financial decisions even under duress. So, when an emergency hits, and you need money quickly, with a planned emergency fund in place you are more likely to come out financially unscathed. Remember - an emergency fund provides the reassurance of knowing you have money to fall back on during an unexpected life occurrence.
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Retirees who haven’t factored inflation when building their retirement corpus.
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Whether you are laid off or decide to leave a job, you need monies for necessities.
Despite relocation reimbursement, there are certain costs that you will incur.
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