Are you secure for emergencies?

Read time 2.5 minutes

Hi, it’s Rohit!

Recently, a friend asked me which is the most important part in the machinery of personal finance. I introduced him to a financial superhero that often operates behind the scenes, silently guarding your financial well-being—the “Emergency Fund”.

Let’s dive deeper.

A Shield Against the Unexpected

Life is full of surprises, and not all of them are pleasant. Whether it's a sudden medical expense, unexpected car repairs, or a job loss, unforeseen events can throw a curveball at your financial stability. That's where an Emergency Fund steps in, serving as your financial shield during unpredictable times. Believe me, I've personally encountered each of the three situations mentioned earlier. The sole lifeline that kept me afloat was a dedicated fund set aside to handle uncertainties.

The Power of Preparedness: Peace of Mind and Financial Security

Peace of Mind: Imagine facing an unforeseen expense without the worry of how to cover it. An Emergency Fund provides peace of mind, allowing you to navigate life's uncertainties with confidence.

Avoiding Debt: Without a safety net, unexpected expenses can lead to borrowing and accumulating debt. An Emergency Fund helps you avoid the stress of high-interest loans and credit card debt. 

In the event of a significant medical emergency, 8 out of 10 families end up incurring debt. As per a recent report 56% of Americans can’t cover a $1,000 emergency expense with savings. And with rising inflation costs it’s going to get worse.

Practical steps on how you can establish an Emergency Fund

Here are the 5 steps I used to create and maintain a proper emergency fund:

1. Calculate Your Target: Determine your monthly expenses and aim to save money for 3 months (bare minimum), 6 months (decent period) or 12 months (healthy period). Would highly recommend you save for 12 months for the extra cushion.

2. Consider dividing it into basic and fixed accounts: Ideally it can be linked to your savings account. You want the money to be accessible. You want this money to stay safe and liquid. Also, you can consider putting a part of it in fixed deposits for better returns but make sure to invest in an instrument where it can be withdrawn in a day.

3. Start small: If you don’t have that kind of cash in hand, set up an automatic transfer of, let’s say $100 a month or whatever amount is comfortable for you, into the account until you reach your target.

4. Only tap the account for true emergencies. This could include a job loss, a medical emergency, or any other unforeseen circumstance under the sun.

5. Replenish the account if you draw on the funds. Unplanned expenses aren’t one and done. They may even come in threes. Regularly restoring the fund safeguards against future unforeseen financial challenges.

Your Financial Future Starts with a Secure Foundation

Even if you typically don’t incur an unplanned expense for years, you’ll still benefit from knowing you have a comfortable cushion in the event of an unexpected expense.

I encourage you to consider your Emergency Fund as the cornerstone of your financial journey. It's not just about saving for a rainy day; it's about creating a financial fortress that withstands life's storms, without giving you any trouble.

Remember, financial well-being is a journey, not a destination. Stay tuned for more insights, tips, and success stories to empower your path to financial security.

Wishing you financial peace and prosperity.

Until next week!

Rohit Makker

“Set Goals That Inspire”

P.S. Have questions or topics you'd like me to cover? Feel free to reach out!