Have you ever found yourself in a tough spot financially? Maybe unexpected car repairs drained your bank account, or a sudden illness left you with hefty medical bills!
Emergencies can happen to anyone at any time. That’s where having an emergency fund comes in handy. But what exactly is an emergency fund, and when should you use it? Read on to know the answer!
What is an Emergency Fund?
An emergency fund is a stash of money you set aside to cover unexpected expenses. The goal of having an emergency fund is to provide a safety net that can help you weather financial storms, avoid going into debt, and stay on track with your financial plan.
However, there may be a time when you find yourself in a situation where your emergency fund is not enough. Don’t worry! There’s always an option to get a small personal loan to help you out. A lot of financial institutions, particularly NBFCs, offers ₹10,000 to ₹30,000 personal loan that can range even up to few lakhs.
5 Life Situations When You Can Use an Emergency Fund
There are many possible scenarios where you can find yourself in a tight spot financially. Everything can’t be covered in one article. But here are 5 most common situations where having an emergency fund can be a lifesaver:
- Unexpected Medical Expenses
Unfortunately, medical emergencies can happen to anyone at any time. Whether it’s a sudden illness or injury, medical bills can add up quickly. Even if you have health insurance, you may still be responsible for co-pays, deductibles, and other expenses. That’s where an emergency fund comes in.
Having some money set aside can help you cover unexpected medical costs without having to dip into your regular budget, savings, or investments.
- Sudden Loss of Job
Losing your job can be a significant financial setback. Even if you have unemployment benefits, they may not be enough to cover all of your expenses, such as rent and EMIs. Plus, it can take time to find a new job. So you may need to rely on your emergency fund to tide you over in the meantime.
Having some savings can help you avoid falling behind on bills or going into debt while you are between jobs.
- Vehicle Breakdown
Cars are essential for many of us, but they can be expensive to maintain. You may face a hefty repair bill if your vehicle breaks down unexpectedly. Plus, if you rely on your car to get to work, having it out of commission can lead to lost wages. And it becomes more urgent to get it repaired.
Having an emergency fund can help you cover the cost without having to put it on a credit card or take out a loan.
- Mandatory Home Repairs
Owning a home comes with its own set of repair and maintenance requirements. Whether it’s an electrical malfunction, a broken appliance, or a plumbing issue, home repairs are expensive. Your home insurance policy may cover certain costs. But some restrictions in your policy may demand you to shed money out of your own pocket.
Having an emergency fund can help you handle these types of unexpected expenses without having to worry about how you are going to pay for them.
- Natural Disasters
Natural disasters like hurricanes, floods, and wildfires can be devastating. Even if you have insurance, you may still be responsible for some of the costs associated with rebuilding or repairing your home. Having an emergency fund can help you cover these unexpected expenses without having to rely solely on insurance or government assistance.
If you find yourself in a situation where the damage is quite extensive, and your emergency fund doesn’t cut it, you can always consider taking out a small loan of at least ₹300,000 to help you cover the costs.
In conclusion, having an emergency fund is a smart move for anyone. You never know when unexpected expenses may arise. Some savings kept aside can help you weather the storm. If you don’t already have an emergency fund, start building one today. Even if you can only save a little bit each month, it’s better than nothing. Your future self will thank you!
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.