Financial experts suggest that you should save at least three to six months’ worth of salary in your emergency fund. Emergency fund will reduce you the chances of increasing your debt; it acts as your cushion.
Emergency fund is an account where you save some money for unpanned expenses which comes with an immediate threat and which requires your urgent attention. In this case it’s not just limited to financial risk. But anything that will affect your well being or plans. Emergency can be anything like;
- Losing your job or pay cuts
- Your business falls
- Car breakdown
During Covid19 Period most people lost their jobs, others got their salary reduce up to half. No one expected their source of incomes would negatively drift down is such a speed. This are the kind of emergencies that affects peoples financial well-being. Having a normal life knowing your monthly income will take care of your day to day experience is okay, but life proceeds beyond normal, it encompasses the unexpected which can be above your financial capabilities.
Over 2 millions Kenyans lost their jobs in the third quarter of 2020 and most of them up to 20% of families survived on remittances from their relatives and friends. While others had to cut their average budgets to be able to meet the most basic needs in their households. Some who used to live in the suburbs areas could not afford their monthly rent so they opted to move to cheaper houses.
Emergencies however big or small could be a set back in your finances, it could either make you borrow a loan or divert from your initial financial plan or goal . ( That’s why creating a working financial goal you’ll have to create an emergency fund account) A financial plan can be even saving for your kids education.
Emergency fund is your personal insurance policy with your own terms. It will cover you on the days of unforeseen needs. It will protect your even on your retirement times. Look at it this way; when you have an emergency kit today you will be able to plan for your future plans without the hustle of digging in to it to take care of todays unexpected expenses.
Some may feel overburden with their current financial obligations to create an emergency fund, well here I have your sorted out with 11 tips on how to save money in 2021. or better yet you can look into your finances and ask yourself these 3 questions to get the how to:
- How can you make more money?
- How can you lower your current bills?
- How can you cut your today expenses?
After identifying ways to get some cash for your emergency fund you should keep it where you can easily access it and where it is also safe, most times it is not advised to invest your emergency fund since the market is always volatile. It is also important to know that your money is not safe from inflation. In Kenya inflation rate usually gores up to 5% annually and the saving accounts in the commercial banks usually earn interest of 4% meaning if your account is charged with inflation rate you will lose a 1% of your interest earnings.
People who have big emergencies arise can either tell you how happy they were that they had emergency funds to take care of the unexpected, or how difficult it was to find the money to take care of the needs since they had not set an emergency fund. Remember emergency fund will save you during the crisis and after.
Feel free to share the insights and comment.