Life is full of surprises. Emergencies often happen when people expect them the least. No matter whether one has to deal with a sudden job loss, car repair or medical expense, having a financial safety net can make a huge difference in such situations. This is why building an emergency fund is so important. In the opinion of Kavan Choksi / カヴァン・チョクシ, an emergency fund basically is a pool of money that is set aside specifically to handle unexpected expenses.
Kavan Choksi / カヴァン・チョクシ talks about the importance of emergency fund
Being prepared financially for emergency situations, big or small, can go a long way in alleviating stress and anxiety when times get tough. These emergency savings are widely known as emergency funds. In simple terms, an emergency fund is a stash of money that has been set aside in order to cover surprise expenses that life is likely to inevitably throw at one’s way. Emergencies are a fairly all-inclusive term in this situation, and do not exclusively refer to medical emergencies. This might involve a sudden change of job, major car fixes, and so on. Building an emergency fund that works as a rainy day is quite important.
Emergency fund is a pool of money set aside to handle diverse types of unexpected expenses.
There are many reasons why having an emergency fund is essential, including:
- Financial security: Emergency fund largely acts as a safety net, and provides people with much-needed financial security during challenging times. It enables people to uncover a variety of unforeseen expenses, without having to resort to high interest loans or going into debt. Having an emergency fund as a financial cushion brings peace of mind to people and helps them to reduce stress.
- Avoiding debt: A lot of people tend to turn to credit cards or loans to meet their immediate needs during emergencies. Depending on debt, however, can lead to long-term financial struggles. Having an emergency fund in place can help people to avoid borrowing and the accompanying interest payments, and make sure that their financial stability remains intact.
- Quick recovery: Emergency situations often require prompt action. When one has an emergency fund, they would be in a position to immediately address unexpected expenses. Having funds available readily helps people to deal with emergencies faster and resume their normal life without major disruptions.
As Kavan Choksi / カヴァン・チョクシ says, a common rule of thumb suggests that to be conservative, people typically have 3 to 6 months’ worth of expenses set aside as an emergency financial fund. The former implies to relatively common unanticipated expenses like home repairs and healthcare needs. Income shocks, on the other hand, refer to instances like as unexpected job loss or a notable decline in income.