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Tata Capital > Blog > Reasons Emergency Funds are Important

Reasons Emergency Funds are Important

Reasons Emergency Funds are Important

People who have experienced unforeseen lean financial periods will tell you either of the two things – how grateful they were to have an emergency fund to pull them through or how challenging it was for them to get the required financial help. The financial storms of life usually come knocking when you least expect them to. As such, pre-planning is key to weathering them smoothly and safely.

Investing in an emergency fund today will secure your financial future and this guide will tell you how.

1. Lowers stress levels

Whenever there is an emergency, the number one thing that rises is the stress level. But, if you have been investing in emergency funds, you can rest assured that you have a cushion for times of financial crisis. This will automatically help you get through tough times in a calm and relaxed manner.

2. Prevents you from dipping into savings

Since savings are generally long-term investments, they are often linked to very important future goals. So the last thing you would want is to dip into your savings if an urgent financial crunch arises. By investing in funds for emergency, you will have the money needed to meet urgent needs, thereby stopping you from using up your savings.

Additional Read – 5 Financial Resolutions for 2022

3. Ensures you do not find yourself in a debt trap

By starting your investment journey today, you can spare yourself the dreaded debt trap. When a financial crisis crops up, investing emergency funds will ensure that you do not lean on loans or credit cards to fund your urgent needs. So, in a debt-free way, you can overcome money crunches.

4. When does an emergency fund come handy?

• Job lay-offs

If you are ever laid off suddenly or wish to quit your job, an emergency fund will help you sustain your expenses until you transition to a new job. Likewise, if there are dry spells when you are not receiving regular monthly income, the fund will help you meet obligatory expenses.

• Medical emergencies

This is perhaps the most unexpected of all reasons. And given the rising cost of healthcare, it is important that you create the hedge of an emergency mutual fund for yourself and your family. This is especially true if you don’t have health insurance as it will prevent you from breaking your savings or taking a loan.

• Last-minute expenses

Sometimes, even simple expenses may call for you to rely on an emergency fund. Think of a sudden car repair owing to breakdown or a last-minute travel booking due to a family emergency. You can easily meet such expenses with a fund reserved for emergencies.

Additional Read – Steps to Build Your Emergency Corpus with Mutual Funds

How to build an emergency fund?

While there are different ways to build a fund for emergency, the most potent of them all are MFs. Based on your risk profile and other investment requirements, you can build a portfolio of funds for an emergency corpus. And to help you choose the right funds, download Tata Capital’s Moneyfy app. Find personalized fund recommendations and browse through different fund categories to build a portfolio of the best emergency mutual funds.

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