Emergency Fund: Why You Need One

What r

An emergency fund is the amount of money set aside to ensure that your daily activities don't come to a halt when confronted with unforeseen financial demand. Emergency funds can cater for medical bills, sudden job retrenchment, home or car repairs, etc. It also hinders you from the desperation to contact Shylock lenders to take high-interest loans or sell off your properties. 

How do you begin the journey?

1. Create a budget 

Creating a budget increases the consciousness and intentionality of how you spend your money. You cannot begin saving money from your income when you don’t have an inkling of how it's spent.

Start by documenting your weekly or monthly expenditure if you earn wages or salary as the case may be. Take into account for at least 2 earning cycles to know which expenses are important or essential (Opportunity cost) . Once this has been enumerated, you can now look for avenues to plan, curtail unnecessary spending and begin allocating some money for an emergency fund. 

2. State the emergency fund target

Peradventure you want an emergency fund to cater for 6 months,  you can create this by multiplying your total monthly important expenses by six. The product is your emergency fund target. 

3. Automate your deposits

Set up a standing instruction from your income source into your savings account. Automating deposits makes saving simple, it ensures you don’t default and makes you conscious of your emergency fund target.

4. Save your giveaways and tips 

Until you have reached your emergency fund target, save all unexpected income. Unexpected money could be attained as a tax refund, bonus, inheritance, winning a bet, cash gift, etc.

5. After reaching the target fund, continue

Situations of life are not always predictable; an unplanned expense can need more than a 6-month emergency target. For instance, being unemployed for more than six months where you’ll have wished you had more in your emergency fund.

When you have this fund what next?

1 Keep it safe

2 Make it accessible especially for emergency 

3 You can invest in short term instruments that can easily be liquidated when emergency arises.

4 They can also be kept in High yield interest deposit accounts.