Ask any trapeze artist, and they’ll tell you that a safety net is a non-negotiable part of flying high. While few of us are circus performers, an emergency savings fund is still one of the most important requirements for our peace of mind and financial stability.
Life has a way of throwing curveballs. Whether it’s an unexpected car repair, an unavoidable medical bill, or a change in employment status, unexpected events are waiting around each corner. While we won’t ever know when these little surprises might take place, with an emergency fund in place, at least we are prepared to handle whatever financial impacts they bring with them.
Apart from the obvious benefit of having money available in a crunch, there are many other reasons why an emergency savings fund makes a lot of sense.
It protects you from money stress
An unforeseen emergency doesn’t just affect your bank balance; it can also be a source of major stress if you don’t have the money you need to deal with it. Having an emergency savings fund serves as a buffer, giving you peace of mind and saving you from having to make difficult decisions like borrowing against (or selling) your house, or dipping into your retirement savings in times of crisis.
It’s a way of taking advantage of opportunities
An emergency fund isn’t just for financial protection; it also provides the flexibility to grab life’s opportunities as they arise. This could be starting a new business, pursuing further education, or investing in a unique opportunity. An emergency fund enables you to take these risks without worrying about financial repercussions.
It can save you money
If you have home and vehicle insurance, you can usually reduce your monthly premiums by increasing the excess you have to pay when you claim. An emergency fund allows you to choose a higher excess, and you can then plough the money you save on lower premiums back into the savings fund. Talk about a win-win.
It lowers your reliance on credit
Credit isn’t necessarily a bad thing, but if you need to use a credit card to pay for emergency expenses, the resulting monthly repayments can cripple your budget. An emergency fund not only decreases this dependence, but also ensures that you protect your credit score from any risk that you may not be able to make a monthly repayment down the line.
Actually, you can start an emergency fund!
Many people put off starting an emergency savings account, believing they lack the money needed to put into it every month. However, even in challenging times, it’s possible to save small amounts regularly. Here’s how to start:
Draw up a budget
Yes, it’s the dreaded ‘B’ word. There is no age limit to starting a budget. In fact, a well outlined budget can help you till you retire. Having a household budget is the first step towards successful saving. A simple budget helps you track your spending and identify areas to reduce expenses, freeing up funds for your emergency savings.
Reduce non-essential expenses
This doesn’t only mean cutting out luxuries. Consider affordable alternatives for your internet or cellphone plans, cancel unnecessary subscriptions, and search for better deals on insurance and other regular expenses.
Automate your savings
Set an automatic monthly transfer from the account into which your salary gets paid, to your emergency savings. Think of it as paying yourself first, and very soon you won’t even notice the amount deducted each month—but you will enjoy seeing that savings balance grow.
Think of an emergency savings account as your very own safety net. While it’s possible to survive without one, having it certainly makes life more comfortable, and the ups and downs a lot less daunting.
WRITTEN BY HIMAL PARBHOO
Himal Parbhoo is a cash investment specialist.
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.