An emergency is like an uninvited guest at home. It can come unannounced, especially when you least expect it. It stays causing you discomfort. By the time it leaves, it has caused enough havoc in your life to last a few days after its gone.
The best way to manage both is to be prepared. You need to be mentally and financially ready to handle a crisis at any point in time.
Understanding emergency fund
What if you suddenly lost your job tomorrow? How will you pay your house EMI and utility bills?
This is just an example of why you may need an emergency fund. It is an easily accessible pool of money built over time. Having an emergency fund provides you a buffer when a major unexpected expense occurs. It prevents you from using a credit card or taking a personal loan to pay for the crisis.
Emergency fund and health insurance
Health insurance is a great way to tackle medical emergencies. With high medical costs, it protects from causing a big dent in your savings. It is, therefore, advisable to have health insurance always. But not all health issues are covered by insurance. Some critical illnesses, pre-existing conditions are excluded. To treat these, you have to spend out of pocket. That’s when emergency fund helps. Also, a health problem is not the only emergency that can occur.
Here are 5 reasons emergency fund is more than health insurance.
1. Your daily expenses are to be taken care of
Getting fired has become a common phenomenon. No job means a tight financial situation. But that does not mean you and your family stop living. Utility bills will still come. You still have to pay your house rent or EMI. At such times, instead of borrowing money from friends or lenders, the emergency fund helps.
2. Car repair
Car’s health is like human health. It can fall sick anytime for various reasons. When tires get punctured or AC stops working or the battery goes bad, the cost of repairing these can be substantial. And you may not have enough scope in monthly budget to adjust this chunk of expense.
3. Home repair
You may ignore house repairs in the beginning. But at some point, it will become an eye-sore. Home repair loans are easily available these days. But why take a loan and get into debt. While home insurance is also an option, it does not cover every repair. That is when an emergency fund comes to your rescue.
4. Paying taxes
As a responsible citizen, you can shed off your tax liability. An emergency fund can be used to pay your unexpected tax bills. This would help you avoid any late payment or defaults in case you don’t have enough saved to pay the adequate taxes.
5. Counter the natural forces
Natural disasters are in no one’s control. All the types of insurances protect themselves from loss or damage that may be caused due to natural disasters like earthquakes, floods, etc. But the loss is bound to happen and maybe the insurance would not always be enough. An emergency fund helps you recover from such losses when you need it the most.
Start contributing to an emergency fund today to be prepared. Remember: when disaster strikes, the time to prepare has passed. As they say – Hope for the best and be prepared for the worst.