How Can an Emergency Fund Ease Financial Stress?

An emergency fund can help us navigate unforeseen financial requirements. The primary reasons people invest in emergency funds are: unforeseen medical expenditures, loss of savings, loss of employment, and other similar factors.

What are the advantages of an emergency fund?

• Maintaining financial stability

An emergency fund can help streamline our investments and expenditure to achieve a balanced financial position in difficult times, such as the COVID-19 pandemic. We must understand that the financial stability of an individual is maintained by properly planning for future liabilities and possible emergencies. For example, suppose a person with four dependents loses their job or source of income during the pandemic. In this case, these emergency funds can aid the person in dealing with immediate challenges like monthly expenses, school fees of children, medical bills, electricity bills, rent/accommodation costs, and so on.

• Tackling medical emergencies

An emergency fund can help one financially plan for the medical liabilities and sudden accidents that might occur in the future. For example, young people with aged parents and grandparents tackle the possibilities of financial stress due to their uncertain health conditions. During the tough times of the global pandemic, people have learned the importance of always being prepared for financial challenges and sudden expenditures.

• Achieving financial goals

An individual must aim to align their financial goals with the diverse challenges coming in the future for maintaining a healthy financial position throughout every stage of life. For example, a student can avail of the benefits of an emergency fund to pursue higher studies after school education. The emergency fund can help bear the urgent monetary requirements for further education from a reputed university.

• Planning for academic/education needs

An individual must inculcate the healthy habit of financial savings as it can help their children prepare in the right manner for their academic and career prospects. Having an emergency fund, especially, can help with student loans and paying fees in a time of crisis.

• Sustaining during a loss of employment

During the pandemic, we have experienced constant fluctuations in the international markets. One must be ready to face these challenges in the future by keeping a backup of emergency funds in their financial planning every year. For example, thousands of contract laborers and company workers lost their jobs during lockdowns in the past years. Investing in an emergency fund helps maintain their essential expenditures and medical emergencies and overcome overall financial stress.

Conclusion

In conclusion, financial planners and wealth managers have suggested that an emergency fund can help in solving many financial problems of working-class families in India. The social and financial benefits of an emergency fund can allow individuals to properly plan their educational, professional, and medical needs for the future.