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Why you should treat your emergency fund as an expense

Your emergency fund is not a use and forget fund

Your emergency fund, is the cushion that helps you tide over unexpected expenses that could derail your finances.

But your emergency fund is not a use and forget fund

Be it a health emergency or a job loss or any expense that you didn’t see coming, your emergency fund is likely to get used more than any other kind of savings during the vast majority of your career.

Many of us, thus, might see our emergency funds get used up, especially in our early years as part of the workforce. But an emergency fund is not “disposable”.

What happens when you are actually forced to use this fund?

When you end up using up your emergency fund, whether partially or completely, you now have a duty to top up your emergency fund, once you get back on track.

One of the key priorities for soldiers after a battle is to replenish their ammunition. Armies have a dedicated logistics chain for exactly this. Battles don’t come up just once.

Similarly, emergencies don’t come up just once. Being without the cushion of your emergency fund might be like driving around without airbags or seatbelts. Not a great idea, is it?

It is, therefore, a smart thing to prioritise rebuilding your emergency fund as soon as you are able to save again from your earnings.

If possible, don’t do this at the cost of non-negotiable goals such as retirement. Instead, cut down on avoidable expenses or non essential expenses for a little while till you get your emergency fund back to pre-usage levels. While it is a bit inconvenient, think of it like an expense just like your insurance premiums. You wouldn’t want to miss insurance payments so why miss replenishing your emergency fund?

PS: A reminder that impulse purchases or a happiness expense such as a vacation are not the right use for an emergency fund. You can and should create an indulgence fund for that!

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