Emergency Money – What is this?

Most of us know the rules of financial management and try our best to live by them. However, are we ready for a real emergency? What if someone in your family has an accident? What if you discover someone has cancer or an equally horrible disease, which requires an expensive treatment? What if the main income earning family member suddenly died? Are you ready for an emergency? Do not worry. Most people answer NO to this question.

However, just as you read the above questions realize how important it is that you and your family members be ready for any emergency. The next question should be, ‘How?’ Here are 5 steps that will help you navigate through an  emergency.

1. Set-up a special saving account for emergencies. Do not mix your regular savings – say for your retirement or children’s education
– with the emergency fund. This should be a completely separate and thus untouchable account until an emergency occurs in your family. Aim at putting together 6-8 months’ income into this fund. The more the better, but it should be a minimum of 6-8 months your income.

2.     Buy life insurance. Insure the life of the earning member. Bad things happen all the time and if death should come unexpectedly, your family should not find themselves helpless.  The life insurance should be enough to help your family bridge over to financial self-sufficiency.

3.     Buy adequate medical insurance. This is not where you want to cut corners. Medical insurance is often ignored only to realize later how essential it is. Have a comprehensive medical insurance plan that covers your entire family including yourself.

4.     Invest the emergency fund money. Consult a financial professional and find out how you could invest your money to have maximum returns and liquidity. With the right advice, you could make your money work for you, doubling and even tripling your money over the years. However, do not tie your emergency funds into plans that have high penalties if withdrawn early, in case of an emergency.

5.     Keep debts at minimum. In the event of disability, death or even job layoff, debts could become crippling liabilities. Learn to keep your debts at the minimum possible. For mortgages and other major unavoidable loans, try to find insurance that would take care of the debts in case of any mishap.

6.     Use your time productively. Dedicate a few hours every week for pursuing productive activities that are done from home. Set up a home business based on the talents and hobbies of your family members. This would not only add to your savings, but also ensure that there is always an alternative financial resource to fall back upon in case of trouble with the major channel of income.

7.     Instill in your family the habit of frugality. Thriftiness does not mean lack of fun or dull living. Teach your family to watch out for value for money when they spend and you will give them (and yourself) the power of saving. A huge amount of money is unnecessarily spent just because you never stop to think – ‘Do I really need this?’ or ‘Am I getting the best value for my money?’

A little bit of planning can go a long way!

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