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What Is An Emergency Fund and Why It Matters?

Life is full of unpleasant surprises when you least expect it. Let’s take the case of the current coronavirus outbreak happening around the globe.

Due to this outbreak, entire country is in a lockdown state and everyone is staying at home. This situation has made me to think that it is very important to build an emergency corpus.

If you don’t have money in case any emergency crops up, what’ll you do?

You would borrow it from your friends or family members but there is no surety that you’ll get it on time. You can also try to get a personal loan that is readily available these days but that would mean you will put yourself in a burden of an EMI to payback the loan amount.

So, what you’ll do now?

There is an alternate option to maintain an emergency fund that will ensure you’ll not dip into your savings and investments meant for other goals.

Experts believe that having an emergency fund allows you to cover for any unexpected expenses, and help prevent you from going into debt.  

What is an Emergency Fund?

An emergency fund is an essential corpus that you keep aside to tackle with emergency like situations like the coronovirus outbreak. It is a pool of liquid money set aside that you can fall back upon in case of any crisis.

Why do you need an Emergency Fund?

Emergency fund helps you to create a financial buffer so that you can take it out in the time of need. Here are few important reasons why you need an emergency fund:

#1. It gives peace of mind

Having an emergency fund definitely gives you a lot of peace and lowers your stress levels. It gives you confidence during the testing times, and provides you with a lot of courage to confront and resolve certain unforeseen situations. For example, consider a scenario where you lose a job due to layoff. If you have an emergency, you’ll not need to panic as you know that you’ve some money to sustain yourself and your family for some months.

#2. It helps keep debt under control

Another great benefit of emergency fund is that you can avoid borrowing money from friends and relatives. You can also repay any credit card dues if you hold an adequate amount in the emergency fund.

#3. It safeguards the financial well-being of your family

When you hold an adequate amount of emergency fund, you can safeguard yourself and your family members. For example, lets say there is a medical emergency in your family and it may run you financially and emotionally. Having an emergency fund will keep the money worries away for sometime knowing you’ve enough money to tide over immediate needs.

#4. It helps to control frivolous spending

Having an emergency fund helps you to curb superfluous spending and also allows you to avoid any unnecessary lifestyle expenses. Also, it inculcates good financial discipline and restricts you spend too much on things that you may not need.

Final thoughts

An emergency fund is essential for any individual as living with the fear of not being financially secure for the future may cause unnecessary stress. It can also lead you to many health issues, and in turn leads you to income loss.

Hence, it is mandatory for you to have an emergency fund to live a more peaceful and comfortable life.

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