What Is The Importance Of Emergency Funds?

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What Is The Importance Of Emergency Funds?

Importance Of Emergency Funds

Life is unpredictable and not all risks will happen, announced. Certain variables in your life fall beyond the purview of the terms and conditions of insurance policies. Emergency contingencies are one of them.

You may wonder what to do in dire circumstances without insurance to have your back? Don’t worry, there are investment options that can protect you in times of crisis- emergency funds.

What Is An Emergency Fund?

An emergency fund is the essential financial corpus that you should save in case life throws unprecedented curveballs at you. It acts as a safety net, allowing you to tackle any uncalled or unplanned situation. Keep in mind that this fund is only supposed to be utilized during the hour of need, and not as a regular expenditure amount.

“Emergency” is an all-inclusive term, referring to any diversion from your everyday life, which suddenly hikes your periodic budget, beyond the essential calculations. Whether that’s a medical crisis, major property damages, unexpected employment issues, etc., emergency funds can truly come through for you on rainy days.

What is the importance of Emergency Funds?

If you’re planning a financially secure life, prioritizing an emergency fund should be on top of your to-do list. Here’s why:

  • Helps To Curb Stress

Emergency funds allow you to live your life without worrying about potentially stressful situations, because you always have a back-up at hand for troubled times.

  • Secures Your Future-Oriented Savings

Your savings are directed towards fulfilling your ambitions. Emergency funds propel you towards your future goals, by meeting your present and urgent needs without you having to compromise with your long-term investments.

  • Protects You From Falling Into The Debt Trap

During economically-trying times, emergency funds can be your support without you having to turn to credit cards or loans. Thus, they ensure that you don’t fall into a debt trap in the face of an economic crisis.

Conclusion: Bare Essentials Of An Emergency Fund

Financial experts state that your emergency fund must have enough to cover at least three to six months’ worth of necessary expenditure. Keep in mind that financial institutions and banks don’t label accounts as emergency funds. Instead, it is the responsibility of the investor to set this particular account up and designate it as corpus reserved solely for personal economic crisis.

Generally, one must hold these as liquid assets like overnight or liquid mutual funds, personal savings accounts, financial market instruments, etc. The primary aim of the emergency funds must be safety and liquidity, rather than wealth appreciation. For advice on building emergency funds and more financial queries, consult our experts at Xander Financial. Visit https://xanderfinancial.net/