During the onset of the geopolitical tension at the Strait of Hormuz , the supply of crude oil was not reaching India and other countries easily since the Strait of Hormuz was completely blocked . At that moment , India declared that its emergency crude oil including those maintained by oil marketing companies reserves can last India for 74 days . This emergency stock was always meant to be untouched until such emergency type situation occurs .

This concept can also be applied to the Indian middle Class families . An emergency fund is a vital corpus which is kept aside for yourself and your family during an unforeseen situation like job loss or medical emergencies . But , do Indian middle class families maintain emergency fund ? , where do they park it ? , how much money do they reserve for emergency ?.

Over 80% Indians lack Emergency funds . This means this group of people is just one major hospital bill away from a financial stress .

Why Middle Class Indians do not have Emergency funds ?

• Who knows what will happen tomorrow?

YOLO (You Only Live Once) . People with such a mindset generally prepare live for their present rather than preparing for the uncertain future . This is so because they believe that no one knows what will happen tomorrow . Bringing conditional Nihilism into economics in order to allow yourself to indulge in luxury and desires in your day to day life may help you to forget about the possible emergencies in future but the moment these emergencies hit you , you will not be able to escape .

Since , you are a middle class professional you have a limited income and that too have spend it on the luxuries which were not required at that moment of time , you will suffocate under immense pressure of a contingency .

Also check out : 4 investment mistakes every Middle Class Indian should avoid

• Nothing Will Happen to Me

An Apple a day keeps a Doctor away . An apple might save you from germs entering your body by strengthening your immune system ,but it won’t save you when a car from wrong side hits you while you were following the traffic rule . Your middle class income and this indestructible mindset never go hand in hand .

To be honest , deep inside they know that its not possible but by repeatedly saying to themselves ” I will be fine forever ” , they create a cocoon for themselves where they find comfort . Through this placebo effect , they subconsciously convince themselves that nothing unexpected and unforeseen will happen to them in future .

• I already have other investments , That’s Enough

“I have invested enough , if something happens , i will adjust the amount from the existing investment .”People think that they can arrange money by withdrawing from their retirement fund , home fund or vehicle fund when financial need arises but they don’t know this step will only take them one step backwards in their investing journey .

By doing this , they delayed their dreams to cater their emergency . And when you have to prematurely close your fund when it was about to reach its goal , the emotional pain of losing progress makes you reluctant to start the journey from the beginning .

• What If Emergency Never Comes?

“What if emergency never comes , my entire fund would get wasted .” The traditional philosophy of a fund means having a return over a period of time which would beat inflation. The thought of keeping money aside for contingencies would trigger a person’s psyche .The primary purpose of an emergency fund is not to generate high yields but provide immediate support when required .

A middle class Indian can not come in terms with keeping money parked for something which may or may not come . The 50% probability of that event not occurring would be enough for him to not keep any capital for it . Keeping an emergency fund would also mean you are protecting your other goal oriented funds .

• My Job Is Secure

“Don’t worry about me, I am secure in my stable job with a great yearly increment . I can handle any contingency .” But what if job loss was that contingency you never thought about? Even the smartest software developers and FAANG employees never thought about mass layoffs during age of A.I until it hit them with full force .

When your age is 48 with no knowledge of AI and its use case , you cant expect a quick job offer soon after you were laid off , at that time you would require your emergency fund to sustain your unemployed life. No job is completely secure , in this age of mass layoffs and moonlighting ,insecurity has risen too much .

Companies are always focused on Quarterly and Yearly profit and nothing else . They are not liable to keep you employed at their office for the rest of your life . For them you are just a headcount and an operational expense which they are looking to cut down .

• I Will Borrow If Needed

“I have a highly supportive family and very close friends , they will always stand tall for me in case of any emergency .” However close your extended family or friends are , but you would always come second to their or their family’s priority . Even if they oblige to your request , very seldom anyone would lend you money without interest .

They would always look into turning your adversity into an opportunity for them by charging you an interest . This would not only make things financially difficult for you but also sours the relationship . When you look towards your immediate parents , then you should also realize that even though you might be getting an amount during emergency but what if they are in an emergency and in dire need of money . You both get caught between a rock and hard place .

• First I will Achieve my goals ,emergency fund can come later

“This year i am getting that 300 CC sports bike that i always wanted to have, emergency fund can wait after i pay bike’s EMI .” Unfortunately , you crash that same bike and end up in a hospital bed having no emergency fund , having to pay EMI for the bike that he can no longer use and no guaranteed income in future .

This way the person gets trapped in the vicious circle of debt and agony and also makes him him realize that it would have been better to delay if he had delayed the dream to own that bike and kept that capital aside for such unforeseen and unfortunate events .

Conclusion

An emergency fund is not expecting something bad to happen , it is about being ready when life does not go according to your plan . This fund is not to generate return or sit idle . It is a type of fund which protects your dreams , goals and investment .

For a Middle Class Indian professional , each rupee serves a purpose . The purpose of the family is served only when everything goes smoothly . The function of this fund is to take the impact of the hit and protect you from it . It should act as a safety net for you to take risk and achieve your goals .