The Buyt Desk
How many of us ever thought in our wildest dream that we will be surrounded by a pandemic? That too twice in a span of two years. COVID-19 is that storm that has not just destroyed livelihood but lives too. It is in such difficult times you realise the importance of having an emergency fund. This is a must-have fund for bad days of life. It will not take away the pain of the situation but will definitely lessen the financial burden.
Five reasons why you must prepare for the rainy days of your life –
1) First step of Financial Planning
An emergency fund should be the most important part of your financial plan. It should be Plan A and not Plan B. Just as you start earning and before you make any investment decision you must first and foremost start building your emergency fund. Calculate your monthly expenses right from grocery to electricity bill to rent or EMI of loans that you pay. Take the estimate by imagining that if you don’t get your salary for 6 months, how will you take care of your expenses? According to experts, everyone should have an emergency fund between six times to nine times their monthly household expenses.
2)A safety net
An emergency fund acts as a safety net when you have a free fall during a bad time. It could be a job loss, accident or a sudden illness. These will be the time when you may be badly in need of funds. If you have a separate fund earmarked for unexpected expenses you won’t fall flat and this safety net will give you some financial protection.
3) Family and Friends
Yes all of us have family and friends who we trust. But when tragedy strikes you never know the family and friend upon whom you depended may also be in a bad situation. You cant be going on looking for another set of family or friends to rescue you.
4)It is not an investment
You don’t have to think that this money which you are keeping aside if invested will earn you a return. But by investing it in instruments that have a lock-in period may put you in a difficult spot when you need this money. The money of emergency fund should be kept in a manner that is available to you immediately. So holding it in your savings bank account is not a bad idea at all.
5) Real Estate or Gold is not your emergency fund
Many make the mistake of assuming that if they own a property or gold they can always sell this and arrange money. But imagine can you sell these assets easily? They are big assets and you would need buyers who are ready to make a big purchase and pay you immediately.
Life is full of surprises some good some bad and at times tragic. Do not underestimate the importance of an emergency fund and start building it if you don’t have one.
