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. Unexpected global events that cause loss of income or financial loss
Recently, due to the impact of COVID-19, many businesses, especially in the travel industry have been severely affected and many are considering cost-cutting measures to tide over this period. It is a global phenomena that is likely to affect tens of thousands of individuals. Events such as this emphasise the importance of having an emergency fund both for tiding over tough times and for potential re-skilling costs that you might incur.
Like all savings, the true purpose of an emergency fund is to give you the freedom to make the right choices freely.