One might be strong with your finances, working really hard, planning strategically and meeting all your financial goals in time.
Nothing can bog you down. But what if you were to face with a sudden health emergency or a leaky roof damaging your house overnight?
These situations arrive without prior announcements and may cause a huge dent in your finances if you are caught off-guard. Therefore, it’s a must to set aside some money every month to build a fund worth 6-12 months of your income to prepare against emergencies.
This emergency fund will ensure that all your bills are paid, long-term funds are untouched and you don’t land in financial trouble, having to borrow money from friends and neighbors.
And taking a loan is the last thing you want when you are in dearth of money. Now, let’s look at a few common emergencies that you must prepare for.
1. Job loss
A change in company policy, loss of clientele, an economic downturn, or any reason unforeseen can cost you your job. This can happen to anyone at any point in time. If you lose a job you will be looking for another job. However, it might take some time for you to find a job of your preference. Meanwhile, your bills and rent can’t go unpaid. This is where a contingency fund comes handy. Your go-to instrument for this type of emergency would be a fixed or recurring deposit, or liquid mutual funds. These are liquid, fetch moderate return and are low risk.
2. Health Emergency
You might be young and fit at the moment and a health insurance plan is just not there on your priority list, but a sudden illness may occur anytime irrespective of your age. And, if you are not financially prepared to tackle the treatment expenses, it can take you down with all its might. You need health insurance in your kitty to pay for your pre and post-hospitalization expenses. If you already have a health insurance policy, you can buy a critical insurance policy to supplement your coverage. A critical insurance policy ensures disbursement of the sum assured upon diagnosis of a critical illness such as cancer, stroke or kidney failure. This amount is meant to cover your momentary loss of income due to such ailments.
3. Death of an earning member
Death of a family member can bring in extreme grief for months and years together. Emotional healing always takes time. However, the financial challenges that come along with the untimely death of an earning member can be tackled with a term policy. The sum assured is supposed to replace the income of the person when he is no more to fulfill his family’s financial requirements. The size of the fund must be determined based on your family’s requirement in terms of debt repayment, rent, children’s education and other monthly expenses.
4. Natural calamity
Natural calamities such as flood, earthquake etc. can cause severe damage to your house and the contents inside. Repairing or renovating could burn a hole in your pocket. You relive yourself from this expense by having a home insurance in place. Whether you are a house owner or tenant, you can financially protect yourself from such mishaps by opting for home insurance.>