5 Reasons Why You Should Have an Emergency Fund

Several large foreign companies have decided to leave Indonesia. Three of them are Toshiba, Panasonic and Ford. There are also rumors that another 190 foreign companies will leave Indonesia. Thousands of employees have lost their jobs. If you are one of these employees, what will you do Of course you will look for another job, and you will be lucky if you get a new job in the near future. However, such circumstances are usually unplanned. There is no idea or preparation for a new source of income.

Between one job and another, where will the money for food come from?

There are two options: debt or an emergency fund. Everyone, as much as possible, doesn’t want to choose the former. The best option is an emergency fund. The problem is that emergency funds have to be prepared in advance, before the unexpected happens. Emergency funds have to do with risk control in managing personal finances.

When financial conditions are normal, some people think they still have a steady source of income, they are still healthy, and they even believe that even if they get laid off, they can easily find a job. However, situations like the above can happen at any time. Therefore, it is very important to prepare an emergency fund as part of each family’s financial planning.

The importance of having an emergency fund

Emergency funds are funds specifically prepared for emergencies. Emergency funds are not investment or education funds. Each must be set up separately. It must be in the form of liquid money so that it can be withdrawn at any time without a lengthy process. The need for an emergency fund is not only about meeting financial needs, but also about preventing the impact on other areas, such as health or relationships with others.

The following reasons make it important to establish an emergency fund from the outset:

1. debt avoidance.

The main purpose of establishing an emergency fund is so that we can meet our immediate needs without going into debt. There are many contingencies that can happen to you. Many people think that their job or business provides them with a steady income and suddenly, in an instant, they have to go into debt because their business has collapsed or their job situation is threatened by a mistake. For example, a family member suddenly becomes very ill and requires a lot of money for treatment. Factors such as natural disasters should not be ignored either, given that a number of major cities have been hit by earthquakes or tsunamis.

There are many other situations that cannot be mentioned one by one. It is wrong to think, “I’m still in a safe position.” Who would have thought that a giant company like Ford would suddenly leave and the next day Indonesia’s unemployment rate would rise

The bad situations that can happen cannot be predicted with certainty. But some common contingencies, such as job loss, company bankruptcy, accidents or natural disasters, are reason enough to do so. Instead of getting into debt and paying high monthly interest rates, it’s better to regularly set aside a small amount of money from your current income. It doesn’t matter how much money you can set aside. Most people acquire a large emergency fund only after saving for a long time.

2. Cost of living when moving Quadrant.

The moving quadrant is a term popularized by Robert T. Kiyosaki, author of the bestselling book Rich Dad, Poor Dad. A quadrant shift is when an employee breaks the bonds of their job and decides to become truly independent by becoming an entrepreneur.

This is the dream of many people. A routine that doesn’t bring any problems, insufficient pay or stagnant income are reasons why people move quadrants. Other unforeseen circumstances, such as the aforementioned layoffs, can also cause people to finally choose entrepreneurship.

Such a decision is a risky one. Some businesses don’t show results for a certain period of time. We need to prepare all the support for the business, get it up and running, and wait for results. During that time, living expenses need to be paid. In these circumstances, you can use a contingency fund. At the very least, it can meet your basic needs and satisfy them for a while longer.

3. business speculation does not match projections

When investments fall short, actually generating losses, business entities are forced to spend additional funds to cover the costs incurred. In such circumstances, emergency funds can be a lifesaver. If someone has multiple businesses, business participants do not need to use other investment funds to cover losses.

4. remove yourself from domestic conflicts

What does this have to do with family conflict? Although it is not the only reason, financial issues are often the main cause of internal conflict in families. If a business goes bankrupt or is suddenly laid off, there is no other financial source to rely on, and the bills and payments keep coming in, isn’t that stressful? Such confusion psychologically makes people more emotional and provokes conflicts that are not constructive.

Conflicts that can worsen the financial situation are certainly not necessary if an emergency fund is prepared. Small conflicts can happen, but they don’t have to be a big problem. Having an emergency fund helps reduce the emotional stress in the home so that problems can be discussed with a cool head. Emergency funds can be used without having to think about where to borrow money or how to pay for it. Basic needs can be met, and if the emergency fund allows, it can be used to start a business.

5. Maintain your health

An entrepreneur suddenly has to go through bankruptcy. All assets are seized, but not enough. Finally, they are in debt. Naturally, the psychological state is shaken. Health also deteriorates. This makes it even more difficult to stabilize the situation. On the contrary, if an emergency fund has been prepared in advance, before any undesirable risk arises, we can face the problem more calmly. At least the financial post for day-to-day needs is still there, so we can focus on dealing with other, more serious financial problems.

Prepare your emergency fund

The above reasons do not cover all the reasons why you should have an emergency fund. You may have more personal reasons. Whatever those reasons may be, it’s only clear that they reinforce the contention that you should have an emergency fund. It’s a matter of how you manage your finances, set aside some of your income, and prepare for emergencies. So from now on, prepare your emergency fund.