When it comes to the unexpected and unseen you need to be prepared. If you got no emergency reserve, your unexpected costs or needs usually end up being taken care of by either a mobile loan, a credit card or to the extreme a shylock.
These unexpected things can be a job loss, medical bill or even something small like a car repair or even lost a phone. Therefore, an emergency fund acts as a financial buffer that will keep you afloat and enable you to recover without necessary going into debt hence the reason why you need an emergency fund.
One of the surest ways to get out of debt is to ensure that does not go further in debt as put forward by Liz Weston.
You want to set up an Emergency Fund? Consider the following questions.
How big should my emergency Fund be?
The best solution to this questions entirely depends on your financial situation, the insurance you have but the best rule of thumb is that you need to have enough money in the fund that can cover three to six months of your everyday expenses.
These monies will be able to give enough time to find another job or even compliment your unemployment benefits.
Having some money in the bank is better than nothing and even KES. 50,000 would go a long way to help you not get yourself into the hole.
Key thing is, START SMALL.
Where do I put my emergency fund?
Since emergencies can occur at any time, you will need to put the man in a place where you can be able to access it easily. You can consider a savings account because the money will be safe and you can withdraw it without much hustle.
Make sure that this account is very separate from your current/checking account. This will ensure that you are not tempted to using your funds.
What steps do I need to take to start an emergency fund?
- Give yourself a monthly savings goal. This will enable you to develop a regular savings habit and ensure that the task looks less daunting. You can dedicate a certain percentage of your monthly income to this plan.
- Keep the change. That 5 shillings or 10 shillings of 20 bob. Have a jar that you can drop in at your house. When this fills up, you can transfer it to your savings account.
- Clean up your current account. If there is some money left in your current account at the end of the month, move some of it to the emergency fund
- Save up that tax refund or windfall. These kinds of monies can be a good boost to your emergency fund.
- Cut back on costs. If you feel like that you are falling behind on the savings, see what parts of your monthly budget that you can cut down on. If that means carpooling, home cooked meals, proper use of leftovers, avoiding buying the small daily purchases like coffee. Save up this money and send it to your emergency fund account.
- Supplement your income. If you can get a second job, sell some stuff that you don’t need.
- Assess and adjust your contributions. Every few months to how much you have been able to save. Make the necessary changes and see if you need to save more. This is important especially if you making some major life changes such as marriage or even moving to a new city.
What is the purpose of the emergency fund?
An emergency is anything that affects your earning capacity or even health.
What is not an emergency?
- · Holiday, vacations, gifts
- · A car repair when you can use public means
- · Anything that you do not need
- · Expenses that are not a surprise like insurance
What steps have you taken to set up your emergency fund? Share with us.
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