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Erratic expenses, unexpected financial commitments, and growing debts are often hard to manage if you only have a single source of income to rely on. Moreover, with the pandemic inflicting massive blows onto the existing professional sector, job security is also a matter of concern, especially for the Gen Z populace. Keeping these volatilities in mind, it becomes all the more important to make provisions for an emergency fund.
To simplify further, an emergency fund is nothing but a conventional stash of cash, often a cumulative sum of three to six months’ worth of income, kept in a semi-accessible location. Mostly, an emergency fund helps you with debt management or cover for an unforeseen event with massive financial repercussions.
That said, setting up an emergency fund isn’t a one-time event and you must keep padding it up to ensure growth and continued financial sustainability. In case the growing fund is left unused for a long time, it can be leveraged as an alternate source of income.
In the subsequent sections, we shall enlist 5 reasons why an emergency fund is an indispensable financial tool, in the existing financial landscape:
1. Income replacement
In case you have lost your job owing to the pandemic or are simply looking to change companies with a month’s rest between transitions, an emergency fund is a great way to minimize the financial stress. In the absence of the same, you might have to speed up the job searching process while losing sleep over the depleting savings.
2. Debt Management
As mentioned, an emergency fund is your greatest ally against the most thwarting financial adversaries i.e. debts. Be it significant credit card debts or an outstanding car loan, an emergency fund allows you to handle the stressful times without breaking a sweat.
3. Emergency Cover
Accidents, sudden visits to the hospital for covid-19 tests, or getting admitted due to worsening health conditions; unforeseen and unannounced emergencies like these require an additional source of income. While you can always argue in favor of medical insurance, the terms, conditions, and the process of claiming the same is arduous and extremely time-intensive.
4. Leisure Fund
Once the pandemic situation gets better with time, you would want to break the monotony of home-bound employment by planning a local or a trip abroad. Setting up an emergency fund can, therefore, serve you well, especially if you do not want to tap into your existing source of income.
5. Business Investment
With an emergency fund in place, you, as a millennial, can specifically cater to each one of your entrepreneurial aspirations. This way you wouldn’t have to depend on anyone else for getting an investment; something that’s necessary for setting up a flourishing business.
A sizeable emergency fund often works as a lifeline during an impending financial crisis. However, it is important to preempt the perfect method for saving your money, to facilitate continued growth and ensure that the fund keeps returning decent interests and financial perks, if and when unused.
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