How to Secure Family Finances with an Emergency Fund

Without including an emergency fund, making a financial plan is like planning a trip by car but not having a spare tire ready. We can be overwhelmed when a tire suddenly bursts in the middle of the journey. If this is the case, our fate will depend on the repair shop or other drivers. What if you can't find both?

Emergency funds are essential in managing finances. No one can tell when the unexpected happens, whether it's the loss of a job or a disaster like the current covid-19 pandemic that requires a large amount of money.

If you have experienced a disaster and do not have an emergency fund, debt is usually the last resort. Worse yet, because they are embarrassed to ask for help from relatives or family, someone will be in debt on a credit card. The amount is not half-hearted. This means that a person can be trapped in consumer debt with high-interest rates.

It's a shame if the financial planning that we have arranged in such a way has to fall apart because we don't have an emergency fund when we experience a disaster. If appropriately prepared, an emergency fund will guarantee our financial management. All will be safe, whatever the conditions encountered!

What needs to be considered is understanding the importance of having an emergency fund. An emergency fund has two main functions that guarantee a person's future.

First, an emergency fund can keep your financial condition from being unprepared for things that are not budgeted for. It should be understood that things that are not budgeted can interfere with allocating funds for other needs. However, with an emergency fund, we don't have to find it difficult to borrow from other parties if there is an urgent need. Moreover, debt with very high interest. Critical things are often no less necessary than routine needs.

Second, emergency funds protect future investments. The trick is to guarantee the current condition. A family will be complicated to invest in the future if the current conditions are not safe. Future requirements depend on what we experience today.

In general, financial planning is done with different time-term goals, namely short-term goals (up to two years), medium-term goals (3-5 years), and long-term goals (above five years). The emergency fund can secure a person arrive safely at his financial goals. This is because the needs and income each year can be different.

People who don't have an emergency fund are particularly vulnerable financially. Or it could also be referred to as a person who is not economically independent. They are just as undisciplined in managing finances. Apart from debt, these people cover their problems is to selling assets.

Because there is no emergency fund to anticipate urgent needs, someone will usually withdraw their investment funds. However, it should be understood that an emergency fund is different from insurance. Emergency funds are cash funds ready at hand and can be used. At the same time, insurance is protection against a protection that requires a claim process and takes time.

When someone already has an income, he should have set up an emergency fund. However, most people are not aware of this. Even if they realise it, they do not know how much funds should be allocated.

If you have calculated, we have sufficient emergency funds, and the total current assets are six times the total monthly family expenses. If you don't have family dependents, then what is estimated is your monthly expenses. This fund will be a guarantee so that the monthly needs can still be maintained.

However, if the funds are insufficient, we need to re-prioritize needs and adjust them to income. The most important thing is to check whether we have consumer debt dependents or not. If yes, then pay off the debt immediately. Furthermore, savings are required separate from the monthly operating account. "The amount is up to a minimum of three times the monthly expenditure and then later it can be increased to six times."

Emergency funds can be used if we face an emergency need. However, after use, immediately refill it to its ideal value. The way that can be done is to rely on monthly savings or use annual bonuses to fill the emergency fund.