Friendship
Day Special
The True Friend That Helps You in
Times of Financial Crisis – Emergency Fund..!
Mr. Venkatesan P, Founder, https://paisacare.in
Every
year, the first Sunday of August is celebrated as International Friendship
Day. We may have many friends who laugh with us and share our happy
moments, but when an unexpected financial crisis strikes, very few people can
step in and help immediately. At such times, the true friend that helps us
without any hesitation is the Emergency Fund that we have built in
advance.
The Financial Safety Shield.. Emergency Fund
An
Emergency Fund is a financial safety shield that protects us during unexpected
situations such as job loss, health problems, family emergencies, home repairs,
vehicle accidents, or unforeseen medical expenses.
On
Friendship Day, this is the most important financial friend we should remember.
What Is an Emergency Fund?
An
Emergency Fund is a separate pool of money set aside specifically for
unexpected expenses or temporary loss of income. It is not meant for earning
investment returns; rather, it is designed to provide immediate financial
support whenever needed.
For
example, if your monthly expenses are ₹30,000, maintaining an Emergency Fund of
at least ₹1,80,000 (6 months of expenses) to ₹3,60,000 (12 months of
expenses) would provide a strong financial cushion.
Why Is an Emergency Fund Essential?
Many
people think, “I already have savings,” “I have health insurance,” or “I can
borrow money if necessary.” However, when a real emergency occurs, these
options may not be enough.
An
Emergency Fund reduces the need to take loans. It prevents you from selling
investments at a loss. It helps your family maintain its normal lifestyle. It
reduces financial stress and allows you to make important decisions calmly and
confidently.
Why Do You Still Need an Emergency Fund Even If You
Have Health Insurance?
This is
one of the most common questions people ask. If health insurance covers
hospitalization expenses, why is an Emergency Fund still necessary?
The
answer is simple: Health insurance does not cover every expense.
Expenses That Health Insurance May Not Cover
- Transportation to and from
the hospital
- Food and accommodation for
family members or attendants
- Certain diagnostic tests
- Additional medicines
purchased outside the hospital
- Treatments not covered under
the policy
- Loss of income during the
recovery period
- Post-hospitalization care
and maintenance expenses
For
example, even if your health insurance covers a hospital bill of ₹3 lakh,
you may still have to spend an additional ₹40,000–₹60,000 on other
related expenses. During such times, an Emergency Fund becomes invaluable.
The True
Friend During Job Loss
In recent
years, job losses have increased across many industries. Finding a new job may
take three to six months
or even longer. During that period, expenses such as house
rent, electricity bills, school fees, food expenses, and medical expenses do
not stop.
If you have
an Emergency Fund
covering 6 to 12 months of expenses, you will not be forced to
accept the first job that comes your way. Instead, you can patiently choose the
right opportunity with peace of mind.
How Much
Emergency Fund Should You Maintain?
Financial
planners generally recommend maintaining an Emergency Fund equivalent to 6 to 12 months of your essential
living expenses, depending on your family responsibilities and
income stability.
Where
Should You Keep Your Emergency Fund?
An Emergency
Fund should not be invested in instruments that are designed to generate high
returns. Instead, it should be kept in places where the money can be accessed quickly and easily
whenever required.
·
Savings
bank account
·
Short-term
fixed deposits
·
Low-risk
Liquid Mutual Funds
·
Ultra
Short-Term Mutual Funds
Keeping your
entire Emergency Fund in the stock market or long-term investments is generally
not a suitable approach.
Health
Insurance vs. Emergency Fund
|
Aspect |
Health
Insurance |
Emergency
Fund |
|
Purpose |
Protection against medical expenses |
Immediate financial support for any emergency expense |
|
When It Is Used |
Medical treatment and hospitalization |
Job loss, family emergencies, home repairs, medical
expenses, and other unexpected situations |
|
Access to Money |
As per the insurance policy terms and conditions |
Immediately available |
|
Does It Compensate for Loss of Income? |
Generally no |
Yes |
|
Who Has Full Control? |
Governed by the insurance company’s policy terms |
You have complete control |
How Can You
Build an Emergency Fund?
You do not
need to create a large fund overnight. You can start with a small amount.
For example:
·
₹2,000
per month
·
₹3,000
per month
·
₹5,000
per month
By
consistently setting aside a fixed amount in a separate account, you can build
a substantial financial cushion over time. A good habit is to allocate money to
your Emergency Fund as
soon as your salary is credited.
Who Is the
Real Friend?
Friends
share our joy and celebrate our happy moments. But during the most difficult
times in life, the one that supports us instantly—even in the middle of the
night, without having to ask anyone for help—is our Emergency Fund. It
gives us confidence, peace of mind, and financial independence.
This
Friendship Day, let us create a new financial friend for ourselves. Having Health Insurance is
excellent, but it is not complete financial protection. Only the combination of
Health Insurance and an
Emergency Fund can provide comprehensive financial security for
your family.
Instead of
waiting for someone to help when an unexpected crisis occurs, start setting
aside a portion of your income today under the name of an Emergency Fund. In
times of financial danger, it is the friend that will never abandon you.
Want to
Build an Emergency Fund?
We
are ready to help you.
For
more details and invest
Founder, https://paisacare.in
Mr.
Venkatesan P
Founder, PAISACARE FINANCIAL SERVICES, Chennai
Phone number: 98404 22744
Arn 315388
E Mail id: venkat.profit@gmail.com
Web Site: https://paisacare.in
Mr. P.Venkatesan had a 30 years’
experience in Financial Services (Life Insurance, Health Insurance, Mutual
Funds etc.)
Office
Address:
Paisacare Financial services
No 3B 2nd Street, Sivanandha Nagar
Kolathur, Chennai -600 099
Read articles written by Mr. Mr. P.Venkatesan
in Nanayam Vikatan, a leading personal financial management magazine.
Disclaimer: Mutual Fund investments are subject to
market risks, read all scheme related documents carefully. The past performance
of the mutual funds is not necessarily indicative of future performance of the
schemes.
