Responses I encounter very often when trying to explain the concept of having an emergency fund to friends are...“But I don’t forsee any emergencies! My job is great, I have health insurance and I live a healthy life, so why do I need an emergency fund?”
Here are a few examples where an emergency fund can help you.
#1. Unexpected financial needs of family or friends
A member told us how she used her Scripbox savings to pay for her mom's medical treatment. Serious illnesses in the family can put people under tremendous financial pressure. Your emergency fund can provide the much needed buffer in such a situations.
#2. Loss of pay due to any unexpected leaves of absence
Want to take some time off from work to care for a close family member? An emergency fund lets you take leave with loss of pay (LOP) knowing fully well that your day-to-day expenses will get taken care of.
#3. Having to leave your job
Whether voluntary or a layoff, this is where an emergency fund can help you manage your expenses till you get the next job.
#4. Separation from spouse requiring you to relocate
Sometimes, some time away is what you need to put your relationships on the right track. Having an emergency fund helps.
#5. Accidents which lead to loss of your vehicle or damage to it
There are many instances where a total loss of your vehicle or significant damage to it might not be covered by your vehicle insurance. Having money set aside helps to soften the impact.
#6. Natural calamities that cause loss of income or financial loss
In the recent past, torrential rains flooded homes from Chandigarh to Bangalore. This kind of damage to your possessions can take a big bite out of your finances.
Like all savings, the true purpose of an emergency fund is to give you the freedom to make choices freely - the right ones.