Emergencies can strike anybody, anytime. Most of the emergencies will require some kind of financial intervention. While one may not be able to control the nature of emergencies, the best one can do in such cases is being prepared, especially financially. Having an emergency fund in place is a good first step towards planning for such financial emergencies.
Here are some emergencies which may require immediate financial attention, and hence access to money. These are some situations where emergency fund can be handy.
Here are 5 financial emergencies you should be prepared for:
1 Health emergency
Health emergencies can strike anyone, anytime, even if you are quite healthy. A good health insurance which provides you cashless hospitalization cover can be really handy in such cases. However, it may not be enough. Sometimes, you may have to pay first and later get it reimbursed. Or there may be exclusions – few expenses may not be covered, or worse the entire condition may not be covered under the insurance cover. Another thing to look out for is – what if you exhaust your insurance cover during the course of treatment?
A good health insurance is really helpful in these cases, but it may or may not provide the complete solution in case of emergencies.
2. Death in the family
Death in close family can be emotionally devastating. More so, if it is sudden and unexpected. While it may take time to come to terms with it, financials may require immediate attention. And this will need you to dip into your emergency fund.
Another aspect to consider, which is beyond immediate cash needs is, what if this happens to you. Will your family be able to cope up with this – in short and long run?
This calls for the need to have a good insurance cover. Typically a term plan which can take care of your family’s expense if you are not around.
How much is an ideal term plan – There is a range of opinions on this, and requires a separate post altogether. However, I believe that as a rule of thumb 10X to 25X of your annual expenses must be available to your family in case of your death. The number can depend upon range of factors like working spouse, liabilities if any, your current assets etc.
3. Loss of income (job loss/ loss in business)
Job losses are not uncommon, especially in today’s fast paced, interconnected world where “disruption” is becoming a buzzword. While disruption can impact lot of people across the industry, job or business loss can happen due to range of reasons – business not doing well, performance issue, not fitting to organization culture etc. Jet Airways crisis is a recent example.
In such situation having an emergency fund can help you tide over a period of unemployment while you look for alternatives. It is difficult if you are accustomed to a high flyer lifestyle and have multiple loans and debts to service.
4. Breakdown of things you own
Maybe, not as severe in emotional impact as the above factors, things breaking down can have a significant impact on your immediate finances. This can be some issues in your house or things or gadgets you own, or health issues in your pets, though not just limited to these!
Some examples – A leaky roof in your home that needs to be fixes, car that got damaged in an accident (and you may get insurance claim later), or laptop that has crashed and needs replacement, or your smartphone that got stolen.
5. Last-moment travel plans
Ever tried booking a long distance flight just few hours before your journey?
While it is always good to plan for travels well in advance, it is not always feasible. Sometimes you’ll need to plan for last moment travels – which you need to pay for. Some reasons may be avoidable (e.g. last moment vacation plans) but some may not be avoidable (e.g. visiting a sick relative or urgent business need)
While you may not always be able to plan for unexpected events in future, you can always try to be prepared to deal with the emergencies, if need be.
What are some other things that may some time become urgent and end up burning a hole in your pocket?