An emergency fund is a stash of money you set aside to protect your financial well-being from unforeseen expenses like a medical expense or a job loss.
This “fund” can be the difference between you having just a small bump in your finances and a complete disaster in your financial life. Let’s not spend time thinking about worst-case scenarios.
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If an emergency happens and you’re not financially prepared, the financial consequences can be near-fatal. It’s the most important reason why you need an emergency fund.
An emergency fund can help protect your career because if you unexpectedly lose your job, which can take a while for you to sort out. Having an emergency fund, you would have cash available to pay for your rent and your other basic utilities. Without this fund how will you keep up?
Besides, your emergency fund can help you make a well though out decision about what your next career move will be. You’ll be able to focus on finding the next job that’s right for you. But If you’re financially desperate, you will likely take the first position that you’re offered, even if it’s not the best fit for you.
And yes the lure of youth. You’re young, you’re healthy. So what can possibly go wrong? A lot can, actually. From unexpected illnesses to major accidents, you want to have an emergency fund so you don’t find yourself with big medical expenses and no way to pay for them.
You dont want to have to go helter-skelter, begging or scrambling to come up with the funds to cover a medical emergency, rather than taking care of things yourself.
Another reason why an emergency fund is so important is that it gives you the ability to pay for unforeseen but necessary home or car (if you own one) repairs.
An emergency fund gives you peace of mind. It gives you freedom. If you decide that your job is no longer bearable and you want to leave to go do something else like find a new job or start a business
. An emergency fund gives you the freedom to do any of these things.
Having an emergency fund also lets you invest better as you can take more calculated risks knowing you have some stash of money for emergencies.
Building an emergency fund means that you get to keeps some money separate from the money you use to pay your bills, which can help you curb frivolous spending.
An emergency fund is only for real emergencies like when you’re job hunting, an unexpected medical expense, or a home or car repair. Your emergency fund isn’t for balling or chilling on a vacation, or for upgrading to the new iPhone that just came out. It’s not for an unexpected expense like buying yourself or your partner’s birthday presents.
So how much should you save or put into your emergency fund? Ideally, your emergency fund should be 3-6 months of your expenses. This might seem like a lot and it is but keep in mind, that the amount can just cover your basic expenses. If you were to lose your job, your spending would be (at least it should be) different than it is when you have money consistently coming in.
The number you use to calculate your three to six months would include expenses like rent, utilities, car payments (transportation) etc. It does not have to include dinners out, entertainment, and clothing expenses.
While it might be very difficult for a lot of people to save 3-6 months of basic expenses since it will add up to a lot of money. But you don’t have to accumulate it all at once. Set a reasonable time frame to get to the six-month number. Don’t give yourself too much time though. Growing your emergency fund should be a top priority.
Let’s say your ultimate goal is N120,000. That means your bare expenses are N20,000 a month. If you saved N10000 a month, it would take 1. 2 years to reach that amount. That’s a reasonable timeframe as long as you are saving that N10,000 every month.
Remember that your emergency fund is a top priority. If you can throw an extra 5k a month in there, do it. Or you can use any “extra” money you get, a bonus, a raise, monetary gifts, to help you reach your number faster.
If you already Feel tapped out and have no extra money to put towards your emergency fund right now? No fear. There are different ways to make some extra money on the side. Here are some ways to make money in Nigeria
You can use a few hours of your leisure time to do something more productive and lucrative that can earn you some more money as you work towards building your emergency fund.
If you have a car, you can drive for Uber or bolt in your free time. If you have digital skills you can get a few gigs on remote sites like Fiverr and co. Or you can set up a free online store
on paystack or flutterwave and sell items you make, resell items you buy or go through your own things and sell them there.
It is sometimes better to make more money than spend less but if you don’t have the time to do something to bring in extra money, there are also plenty of ways to spend less
. Start by creating a financial plan
, going through budget and see where you can cut expenses.
So I’m sure you’re thinking. Where can I save or keep my emergency fund so that I don’t tamper with it?
It should be kept where it can be quickly accessed and where it will be safe. It’s reasoned that if you invest this money it may decline in value when you need it because of market volatility.
Don’t put in the same account where you spend from. You know why.
A great way for saving for your emergency fund is by automating the process of saving. Where you can set up automatic monthly transfers so you dont have to think too much about it.
Be prepared for anything. This is the ability an emergency fund can give you.
While you can’t ever fully prepare for emergencies, the reasons for an emergency fund are many: your fridge may go bad, you could receive an unexpected tax bill from one of the many government agencies, or you may need to travel last minute to visit an ill relative or pay your last respects to one that just passed away. The list goes on and on.
Planning now and having an emergency fund is the best way to ensure you can handle unforeseen challenges. You can sleep better at night knowing you can handle life’s financial ups and downs because of your emergency fund.
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If you have any question about money, investing, or starting a business in Nigeria. You can send us a message by “Replying” to this mail. We’re always happy to help.
Your suggestions and comments are always welcome.