The Ins And Outs Of Emergency Funds

The Ins And Outs Of Emergency Funds
April 9, 2018 K Compare
emergency fund

The Ins And Outs Of Emergency Funds

The balls life throws at you are not always caught by you smoothly and sometimes they hurt you very badly which results into devastation of your budget. As with most finance-related issues, pre-planning is necessary for being successful in facing the storms coming your way, that is why being prepared with an emergency fund gives you confidence and assurance that you can handle sudden dilemmas without adding money worries to your list.

An emergency fund is an account kept aside to cope with the financial problems in case of unforeseen incidents, such as the loss of a job, surprise medical bills or a major repair to your home. However, recent statistics show some alarming results. Pakistan’s savings rate has never touched even 20% of GDP. It will be not wrong to say that economic model of Pakistan is not a saving-oriented society. We need to be a saving-oriented society for a sustainable growth and economic prosperity.

While an emergency fund could work as a cushion for sudden events, before building one, there are some advantages and disadvantages to consider.

Advantages

  • Peace Of Mind

No wonder when life throws an emergency at you, it threatens you financially and causes stress. To avoid this threat and stress, setting aside money in an emergency fund can reduce the financial fall out from a loss and it can give you true peace of mind. It can help you through financial crisis so you can just focus on taking care of that problem instead of worrying about finances during the unexpected emergency.

  • Protect Your Savings

Your emergency fund also protects your savings for other goals in rainy days. For example, if you are saving money for a car, and a sudden medical emergency occurs, you will use your emergency fund for that rather than using the savings money to cover the medical bills.

  • Keep Your Money Safe

When people have extra money, many of them put them in a piggy bank, or stash it beneath their clothes or under their mattress; some of them choose to carry it in their wallet. Unfortunately, all of these tactics put their money in jeopardy because; the ones who keep their money at home can’t protect it in case of robbery or fire and the ones who carry their cash around can’t protect it in case their wallet is lost or stolen lose it if their wallet gets stolen. Therefore, if you want your hard-earned cash to be safe, don’t use the tactics mentioned above. Instead, deposit it in your bank. This way, you will be sure that your money is secured and safe.

  • Don’t Need A Huge Deposit

Do you have only Rs.1000 extra in your wallet? No problem! One of many benefits about savings account is that they require a minimal first deposit to open your account, ranging from Rs.1000 to as little as Rs.100. This is a great start if you have just started saving in your emergency fund and want to advance in financial habits.

  • Cash Is Liquid

One of the best things about emergency fund is that it keeps your money liquid and allows you to withdraw it whenever you want. So, if an unexpected bill falls on you or if you run into surprisingly expensive repair bills of your car, you can use your emergency funds promptly which you have kept aside to handle these kind of emergencies and avoid financial disturbance in your life.

Disadvantages

  • Tempts You To Spend More Money

The biggest drawback of keeping emergency fund is the temptation of dipping into your own savings whenever you want for non-essentials like a designer dress or big-screen TV or to invest it for a higher yield return which is not exactly an emergency. Make sure you are not tempted by your frivolous wishes. The whole reason behind building emergency funds is to have easy access to cash so you can take care of life’s unexpected events.

  • Takes A Long Time To Build Up Savings

According to a survey, an emergency fund should have enough money to cover at least three months of living expenses; clearly it will take some time to build an emergency fund on which you can rely when an emergency occurs. Even if your budget is limited, you can slowly and patiently make an emergency fund. You can also cut back on many of your expenses to make your money last longer.

  • Fewer Funds For Other Projects

When saving more money toward your emergency fund, apparently your other financial goals will be affected as there will be fewer funds for them such as paying off your debt or saving for a new car.

Financial troubles can cross anyone’s path but, making safety nets for financial health should be as much a priority as taking care of your own physical health.

 

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