I ask myself this question every month and therefore try to save extra each month so that I can prepare better for financial emergencies than yesterday. While India is fighting the Corona Virus again, I have been asking this question every day for the last 2 weeks.
Now a financial emergency can occur in a number of ways, such as:
Job loss
The accident therefore you need heavy hospital expenses and lost income
Untimely death
When we talk about a financial emergency, we always talk about job loss or untimely death. We take the emergency fund to tackle job loss and take out untimely death insurance to save some money for our loved ones.
Now people may claim that you have health insurance for option 2, but what if the insurance company denies the claim and therefore you have to find the money soon. And what I see is that hospital bills often go too far and therefore every few people have so many Health insurance. Although you later claim insurance money for a health emergency, you may not be able to wait as you need money to start treatment straight away.
This brings me the question: How should I financially prepare myself for multiple simultaneous emergencies such as job losses, accidents and surgeries. One thing we should consider that an emergency is not one after another can have a gradual effect meaning that two or more emergencies are coming at the same time.
For example, accident + loss of income + expensive hospital bill, this can come when you have to pay the hospital at the same time, however, there will be a loss of income as you go to a loss of wages because you take longer leave. . Job Loss + Expenses, but this is the most common where you have job loss and you have to pay the expenses and therefore it can affect in many ways, such as increased interest if you don't find a job early.
Now we talked about the Emergency Fund, which will be needed in any case. We value liabilities such as Bicycle, Home on EMI instead of saving and paying completely first. The first job after finding a job is to have an emergency fund that will last 6-9 months when you become unemployed today.
Next up is a social network. Social networking is of great importance because when you have a social network it opens the door for directions or suggestions that help you get into the conversation seat. While solving the interview is up to you depending on your skills and experience, getting interview interviews is equally important and so you can use a good social network.
You have double insurance. Now we make money to enjoy life, but what if tragedy happens. So the most important thing is to have health insurance. As a salaried employee, I get insurance from my employer. But I also have insurance on the outside because the company's group insurance usually doesn't cover many things. It will also benefit you if you lose your job due to the termination of your employer's insurance. That's why we should have health insurance, critical illness insurance, life insurance and accident insurance. Because being insured is cheaper than so much money saved.
Having high-spending credit cards. Now people can argue that holding credit cards is bad. However, the importance of having a credit card is that it gives you 1 month of free liquidity. If by any chance you can't access your emergency fund, a credit card can help you a big time because you get a month of free liquidity and you can arrange the money during that time.
That's what I've done so far to prepare for a financial emergency. Now the next step for me is to have a longer term contingency fund in the form of assets. We usually invest money to make a profit from it. But we shouldn't spend this profit literally for our pleasure. Actually what we have to do is enjoy and save accordingly according to your current financial situation. As of now I have a 1-year emergency fund, but I want to grow it for 2 years and more.
Now to beat inflation, I will not hold contingency funds for more than 1 year in Fixed Deposit, instead I will invest in Mutual funds and other asset classes that can beat inflation and in return create wealth for me.
we always need to reserve a portion of our budget. you never know what will happen when