Highlight: Those squirreling away for rainy days may be able to sleep a little better at night with the help of Emergency Funds.

If there is one thing that the pandemic has taught us, it is that you never know when you might need funds. From unexpected medical emergencies to crashing businesses, several unexpected scenarios can be daunting to us at any point in time. This is when an emergency fund comes to your rescue. 

In present times, we all yearn to get out of this health crisis soon, but it is ambiguous how the economy would progress in the next few months and years. It has been quite evident that the pandemic has made the Indian economy take a severe brunt. As a result, it has had a direct impact on our jobs and finances. 

In such times, those who have been saving away are the ones who are protected. Have you ever noticed how squirrels always save a part of their food in the tree log for the harsh days? Individuals who have been squirreling away for such a rainy day may be able to sleep a little better at night with the help of emergency funds. 

A little financial cushion assists one enormously to tide over tough times. It also ascertains peace of mind. If you do not have an emergency fund already, this is an opportune time to create one. 

But first, let us get you well equipped with all the knowledge you might need about it.

What is an emergency fund?

As the name indicates, an emergency fund enables you and your close ones to financially face a medical scare, inevitable household repairs, unexpected loss of job or salary, or pay cut. It also financially safeguards people against any occurrence that affects the community at large, such as wars, social unrest, natural calamity, or a pandemic like the current one. Most banks and financial experts recommend that you should secure anywhere from three to six months’ worth of salary in an emergency fund. 

Also Read: A Personal Loan For Medical Emergency: Just What The Doctor Ordered

This fund is essentially capital that has been set aside to cover life’s unexpected events. This capital will permit you to live for a few months should you happen to lose your job or pay for something unforeseen that comes up without going into deficit. 

It functions a lot more like an insurance policy, the only difference being that you do not need to pay a periodical instalment. Instead, you are paying a total sum that you can use at a later date. A certain amount of cash that can be easily accessed without any hassle. 

Importance of emergency funds in need of urgent money

An emergency fund is a cash loan that functions as an essential corpus to keep aside to tackle emergencies. It is a fund you can fall back on at the hour of crisis or for unexpected and unplanned scenarios, not for meeting your routine expenses. As a result, you must design it specifically to meet unpredictable financial shortfalls that may apply to you. The pandemic has been the best lesson regarding emergency funds. 

Take the USA – a great example of a financially mature populace. In April 2021 Forbes survey conducted by YouGov found that the pandemic triggered nearly 40% of people who had emergency funds to access them, with 73.3% using up half or more of the fund and 29% all of it.

When the whole country unexpectedly went into virtual lockdown, several people lost their jobs and their income. However, as is the virtue of life, it went on. Loss of jobs didn’t stop living expenditures. Even though the government did help, the aid was provided after a certain period, and not everyone qualified. The pandemic taught us that it is better to be never caught off-guard. 

It is also reported that if you don’t have emergency savings, you’ll be way more tempted to buy into a credit card scheme or loan pitch. 

However, it is much more judicious to get instead an emergency fund reimbursed. One needs that safety net between you and life.

It is important to note that you need to park your emergency funds in a certain investment option if you wish to gain interest in them. One thing to keep in mind during this is to always invest your money in schemes that can be liquidated easily. This could be a savings bank account, a sweep in FD’s, or liquid mutual funds. ULIP schemes are also a good option when considering emergency fund investment options. 

However, it is important to find a plan that aligns with their risk appetite and investing style. If you happen to choose the appropriate scheme it might also help you in tax reduction. 

When invested judiciously, apart from offering a secured future, an emergency fund also helps in debt management and extra earning. 

Conclusion 

Emergency funds can be a great way to safeguard you and your loved ones for an unforeseen future. Alternatively, you can look into EarlySalary’s instant emergency cash loan. It offers paperless approval without any collateral. In addition, it also offers a quick dispersal time. 

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