Are emergency funds mandatory?

The importance of emergency funds cannot be overstated. However, they are not bulletproof and cannot guarantee to bail you out in a financial crisis.

2020 was a forgettable year, yet it taught us many valuable lessons. From spending time with our families to rediscovering our hobbies, we all learned something new. Financial literacy also improved dramatically, as people better understood how to plan their finances. Many started setting up emergency funds to ensure they were prepared to deal with any financial challenge in the future.

But what is an emergency fund, and is it really the only solution to emergencies? Let’s find out!

What is an emergency fund?

An emergency fund is a pool of money that you reserve for emergencies. It is meant to address unforeseen financial challenges, such as sudden repairs in your house or illness. Daily and weekly expenses do not fall under the purview of an emergency fund, so you should not use it to buy grocery or pay bills. You can set up an emergency fund with a small amount and increase it steadily.

Why do I need an emergency fund?

Despite your best intentions, you cannot control everything. Your plans will be hampered at some point, but it is your reaction that will define the future course. An emergency fund ensures that at least your financial position isn’t compromised in any emergency.

A secure financial footing reduces the burden on your shoulders, allowing you to focus on other things. For instance, if you are stuck in a medical emergency, an emergency fund can take care of the medical bills, allowing you to spend time with your family.

Personal Loans: an alternate solution

An emergency fund is a helpful tool, but it cannot guarantee to bail you out of an emergency. Your need might be more than the money in your emergency fund, which might force you to dive into your savings, or even worse, your investments. Therefore, relying solely on your emergency funds can be risky.

A personal loan for emergencies is a worthy alternative to consider when you are stuck in an emergency. It will provide complete financial security during emergencies and guarantee that your financial needs are met swiftly. Also, because personal loans are a type of unsecured loan, you do not need to provide any collateral to access funds.

As the personal loan interest rates charged by IDFC FIRST Bank and similar institutions is reasonable, repayment is also more manageable. Thanks to mobile banking, there is also no need to visit a bank physically and apply for a loan. You can apply for a loan and get the loan amount disbursed in your account online.

If you are applying for a loan with IDFC FIRST Bank, download the instant loans app and visit the loans section. You can then apply for a personal loan by filling out the application form and uploading the required documents. If you have a decent credit score and meet the eligibility requirements, the personal loan amount will be disbursed to your account within 48 hours. Yes, that quickly!

An emergency fund acts like a parachute in an emergency, helping protect your savings and fulfilling your needs. Hence, you must try building an emergency fund, although personal loans can always save the day.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.