If there is one thing the past year has taught us is how unpredictable life can be. Emergencies are imminent. You never know when they’ll arise so it is better prepared. Having an emergency fund reduces the stress surrounding the unknown.
What is an emergency fund?
An emergency fund, or as I call it the “Oh Sh*t,” refers to money put aside in case of unexpected expenses arise. Its purpose is to cover unavoidable and unexpected costs that arise.
The aim is to build financial security so that even if the worst (like losing a job or having unexpected medical expenses) happens, you will still be able to cover all your fundamental expenses.
It is definitely not for the pair of sneakers you just saw at your favorite shop. Or the lovely sundress that fits your figure perfectly.
How big should my emergency fund be?
Most personal finance gurus advise that it should be equivalent to your 3 monthly expenses. However, I believe six to nine months is better and safer. While we always hope that the bad times do not last, they do sometimes. And this is one of those cases where the saying “ better be safe than sorry” fits like a glove.
Where should I put my emergency fund?
An emergency fund is not part of your savings. It should always be accessible. It should be in an account that you can dip into at any time, as needed. You can open a bank account solely dedicated to your emergency fund.
You should, however, exercise the utmost discipline. Remember it is accessible so that you can use it when necessary without going through paperwork and all the hoops that are required for a normal savings account.
Why do you NEED an emergency fund?
As I mentioned before, life is very unpredictable. It will throw you curve balls and lemons and hide your juicer. You can never be too prepared for the unknown. However, having a financial cushion to sit on can make those unexpected situations a little more bearable.
Emergency funds build financial security.
5 easy Ways to Build an emergency fund fast
Set several smaller savings goals
Setting financial goals is the way to go. You need not overwhelm yourself with huge savings goals that will demotivate you. Set smaller achievable goals.
We all feel good when we have achieved something.
Practice good money management
Nothing beats consistent money management. Good or bad. To build your emergency fund you need to have a money management strategy that will work.
You can start budgeting and account for all your cents. You can also find a financial system that works for you. Personal finance is subjective. What works for your friend might not work for you.
Reduce Monthly Expenses
Spending less on your day to day expenses will leave you room to save. The aim is to have enough money in your emergency fund and to also invest in other plans such as a retirement fund.
Multiple streams of income
Create another stream of income will surely get you closer to your emergency fund goal. Side hustles are also another way to increase your monthly income and have money to save in your emergency fund. There's a variety online and you can choose one that best suits your interest and schedule.
3 emergency fund mistakes to avoid
Not having an emergency fund
Too little money
Using an emergency fund for non-emergent things
Let me know which one you'll be trying
