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| Is It Okay to Prepare an Emergency Fund When You Are in Debt? |
Being in debt is indeed difficult. The thought of paying off debt can make you stressed and anxious, what more if you add other burdens such as emergency fund savings?
So now a new question arises: is it okay to prepare an emergency fund when you are in debt? Let's see the answer in the following article!
What is an Emergency Fund?
An emergency fund is savings that are specifically allocated to deal with emergency situations. An emergency fund is money that is saved for urgent and unexpected needs, such as medical expenses due to accidents, home repairs due to natural disasters, or other unexpected expenses.
Benefits of an Emergency Fund
In the financial planning pyramid, the position of the emergency fund is at the foundation. An emergency fund functions as a financial safety net when unexpected things happen. This is important, even when you are in debt.
Examples of emergencies:
- You suddenly lose your job.
- Having a serious illness and needing large medical expenses.
- Having to replace a completely damaged laptop.
If you don't have an emergency fund, you may be tempted to use debt to cover your urgent needs. This can worsen your financial situation. You are already in debt, plus there is new debt.
Having an emergency fund provides a sense of security and peace of mind, so that when an unexpected situation occurs, you can just take your emergency funds without having to get caught in debt again. So that in the following months you can still focus on paying off your debt.
Have you collected an emergency fund? Have you ever calculated how much emergency fund you need? In the next section, we will discuss it!
How to Calculate Emergency Fund Needs?
The amount of emergency funds you need depends on your current condition.
For those of you who are single without dependents, you need emergency funds of 6 times your monthly income. Meanwhile, for those who are married and have children, you need 12 times your monthly income.
So what about people who are not married but already have dependents (for example parents/siblings)? Then their emergency fund needs are 9 times their monthly income.
Here are some other alternatives for calculating emergency fund needs:
- Use an online calculator. There are many online calculators that can help you calculate emergency fund needs, such as an emergency fund calculator
- Consult a financial planner. If you have a complex financial situation, you may be confused about how to formulate the ideal emergency fund for you.
Is it permissible to prepare an emergency fund when you are in debt?
So the big question is: is it permissible to prepare an emergency fund when you are in debt?
The answer is: it is still permissible and even recommended.
One thing you should remember is that unexpected emergencies such as accidents, job loss, or home damage can happen at any time, even when you are in debt. An emergency fund helps you deal with these unexpected situations without having to add to your debt burden.
Tips for Preparing Emergency Funds When in Debt
Follow some tips for preparing emergency funds when you are in debt. It will gradually accumulate!
1. Prioritize Basic Needs
Make sure you have enough money for basic needs such as food, shelter, and transportation. Don't let your ambition to collect emergency funds force you to live too frugally until you get sick.
2. Make a Budget
Record all your income and expenses. This helps you know how much money you can set aside for an emergency fund.
3. It's Okay to Save Small Amounts
It's okay to set aside a little bit at a time, even if it's only IDR 10,000 per day. Saving small amounts but regularly is much more effective than saving large amounts but rarely done.
4. Find Additional Income
Look for opportunities to increase your income, such as freelance or side jobs. Or you can also do online business if possible.
5. Take Advantage of Promos and Discounts
You can also save money by taking advantage of promos and discounts. So that the remaining money can be saved to fill your emergency fund savings.
6. Avoid Unnecessary Expenses
Limit spending on unimportant things, such as hanging out or buying things you don't need. You can set aside the money to fill your emergency fund savings.
Conclusion
Having an emergency fund is an important step to achieving financial stability. Even when you are in debt, you should still try to have emergency fund savings immediately so that you don't get caught in debt again in the future.
Preparing an emergency fund when you are in debt is not easy, but it doesn't mean it's impossible. With a strong intention and consistent in setting aside money, your emergency fund savings can definitely be fulfilled in time!
Hopefully this article can enlighten you and your emergency fund target will be achieved soon!