During the COVID period starting from March 2020, many people went through tough times. Some small companies shut down or were closed for months, causing employees to either lose their jobs temporarily or receive reduced salaries. Many families faced unexpected expenses due to hospitalizations. If someone didn't have an emergency fund to handle these situations, they might have had to sell their assets or properties in distress or resort to high-cost debts.
An emergency corpus is a sum of money that is set aside to help manage unexpected financial emergencies. As we have seen in the opening para, these emergencies could include sudden job loss, medical emergencies, natural disasters, and any other unforeseen circumstances that require immediate financial attention.
The importance of maintaining such a contingency fund or Rainy-Day Fund cannot be overstated.
Having an emergency fund provides a family with peace of mind knowing that they are prepared for unexpected financial emergencies. It can help reduce anxiety and stress during difficult times.
In the absence of a contingency fund, many people resort to using credit cards or taking out loans to cover unexpected expenses. This can lead to mounting debt and interest payments, which can take a long time to pay off. Maintaining an emergency fund can help avoid this situation.
In the absence of such a financial cushion, people may be forced to dip into their retirement savings to cover unexpected expenses. This can be detrimental to their long-term financial goals and may impact their retirement plans. By maintaining a contingency corpus, one can avoid tapping into their retirement savings and keep their long-term financial goals intact.
An emergency corpus provides flexibility to manage unforeseen expenses. It can provide the necessary funds to cover expenses that may not be covered by insurance, such as deductibles, co-pays, and other out-of-pocket expenses.
An emergency fund can help reduce financial stress during times of crisis. Knowing that you have the necessary funds to cover unexpected expenses can provide a sense of security and help reduce stress.
In the absence of liquid funds or ready cash, people may be forced to sell assets or investments to cover unexpected expenses. This can result in missed opportunities for growth and income. By maintaining an emergency corpus, one can avoid selling assets or investments and keep their long-term financial goals intact.
While insurance is important, it may not cover everything. In the event of a natural disaster or other unforeseen circumstances, insurance may not cover all expenses. Having a Crisis fund can provide the necessary liquidity to cover any gaps in insurance coverage.
Having a contingency corpus can also provide flexibility in investment. It can provide the necessary funds to take advantage of investment opportunities that may arise during a market downturn.
Maintaining such a corpus can provide confidence in your financial planning. It can help you feel secure in your financial future and give you the ability to handle unexpected expenses without affecting your long-term financial goals.
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