Writer Annisa Rahmah, MICRA Program Assistant
Editor Regita M. Rusli, MICRA Program Development & Alternatives Manager
Debt is often an integral part of financial life, whether it's student loans, car loans, or credit cards. Actually, debt can help fulfill needs that cannot be paid in cash. However, without proper planning, debt can become a financial burden that is difficult to control. This is where emergency funds play an important role in debt management.
An emergency fund is a pot of money prepared to deal with unexpected situations, such as job loss, sudden medical needs, or other urgent matters that must be met at that time. Its main purpose is to provide financial protection so that you don't have to go into debt when facing an emergency.
The Role of Emergency Fund in Debt Management
Avoiding Increased Debt
Without an emergency fund, a person may have to go into debt to cover unexpected expenses, such as hospital fees or car repairs. With an emergency fund in place, you can pay for urgent needs without having to take out new loans that could put a strain on your finances in the future and it can keep you safe for the next few months despite life's uncertainties.
Keeping Finance More Stable
If you face an emergency situation such as losing your job, an emergency fund can help you keep paying your debt installments on time. This is important to avoid late fees or increasing interest. Emergency funds keep you on track with your financial goals, even when faced with unexpected expenses..
Reduce Financial Stress
Accumulating debt is often a major source of stress in a person's life. With an emergency fund, you have financial security that can give you peace of mind, so you don't have to panic when facing unexpected expenses.
For those who are struggling with how to start an emergency fund, here are some tips on how to start an emergency fund.
Tips for Saving Emergency Fund
Set Priorities
Prioritize your financial budget, prioritizing emergency fund before investment. Set aside a portion of your income every month, for example around 10% - 15% at the beginning of your paycheck. Evaluate your expenses and reduce unnecessary ones, such as subscribing to services that are rarely used.
Begin with a Small Amount
Don't worry if you can't reach a big target right away. Start with a small but consistent amount, which when accumulated can become a significant amount at the end of the month.
Use Separate Accounts
Keep it in a different account so you won't be tempted to use it for daily needs.
Utilize Bonuses or Unexpected Money
If you get a work bonus or extra income, immediately set it aside for your emergency fund. Change from shopping or cashback from online transactions can also be allocated to emergency fund savings.
Conclusion
Like a wheel that keeps turning, so does life. You can never know when you'll be on top and when you'll be on the bottom. That also applies to your financial condition. There are times when you have enough money to fulfill all your needs, but there are times when obstacles come and make your financial condition worse
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