It was five days to Easter Sunday and we could never have expected what happened. At first, it was a light drizzle, then it became a downpour, so heavy that it flooded our house. All the rooms downstairs were affected, and our properties destroyed. As much as it was in no way a palatable experience, my family and I were fortunate in that it wasn’t a budget disaster. Many of our neighbours still grappling with their loses have not stopped asking how we were able to raise the N2.5m in costs that came with damages associated with the flood in just 2 days. My response……. Our Emergency Fund.
He went ahead to share with his neighbours how to set up an emergency fund.
What is an Emergency Fund?
An Emergency fund is a priority goal that every individual and family must fully set up before planning towards other financial goals. It caters to unexpected expenses or unforeseen circumstances. This fund is set up strictly for emergencies such as job loss, large medical issues, major auto repairs etc. It’s always best to be prepared as we never know what the future holds for us. Having an emergency fund is extremely important so you’re always prepared to deal with whatever life brings, whether good or bad. Such a fund is not for goals such as ‘buying her that red dress you would really like to see on her at your date tonight’ It is also not an account where you make withdrawals to fund Friday night bills when hanging out with the boys. No, emergencies only, please.
How to set up an Emergency Fund
- Create an account that is personally labelled an Emergency Fund. No account is called an Emergency Fund you would have to create one and label it by yourself
- Save up at least 3 to 6 months’ worth of your living expenses before you can claim that you have fully set up an emergency fund. It can be saved gradually until the advisable amount is achieved. If you earn N100,000 but you spend N50,000 every month therefore you must have a minimum of N150,000 to N300,000 in your emergency fund. Should there be job loss it is expected that this amount would help you maintain your current standard of living before you find another job within 3 to 6 months.
- It must be saved in a financial instrument that preserves the savings and is liquid that is easily accessible. This instrument must also be a high income paying instrument that you can access in not less than 24 to 48 hours.
- A money market fund is the most suitable investment instrument as it checks all the boxes stated in 3 above.