Emergency Fund. Nice to have or must have?
My people, I’m here again with a topic that is close to my heart. You see, my first job was an internship. The pay wasn’t much, but I did it because I wanted to learn the ropes. Since the pay wasn’t a lot, I budgeted and planned my expenses a lot. I didn’t eat what I couldn’t afford or go where I couldn’t afford. I kept everything within budget and tried to put aside about ₦10,000 every month, because I felt I’d need it to take a course later on.
Fast forward about 5-6 months into the job. It was Ember season and I was running an errand on the weekend. Immediately I came down from the keke and touched my pocket. I realised the guy in the red shirt beside me had stolen my phone. I chased the keke, but couldn’t catch up. I went to the park, but they said they couldn’t help, since I didn’t enter the keke at the park. I cried and cried. When the tears dried up, I got up, went to my savings and used it to buy a new phone. That was the day I discovered what emergency savings were and the importance of having one.
What is an emergency fund?
If you paid attention to my story above, you should have some idea of what emergency funds/savings are. It’s basically easily accessible money you’ve kept aside in case of any unexpected event.
While a budget helps you plan for monthly expenses, an emergency fund helps you plan for future unexpected expenses. Now, this doesn’t mean you’ll take from your emergency savings if your friends say, “Hey! Let’s go on a trip” or if you overspent that month. Emergency funds are used for completely unexpected, but necessary expenses. It’s like you are giving yourself financial assistance in a time of need.
For an emergency fund to truly live up to its name, it needs to have a few characteristics:
- It must be separate from your regular spending cash. Ideally, it should have its own account, we’ll name that the “emergency account”.
- It should also be separate from your personal savings account. Ideally, your personal savings account is used to grow your wealth, but your emergency savings account is used to take care of unplanned, but necessary expenses.
- It must be easily accessible and easily liquid (easily turned to cash) ie. If you decide to invest your emergency savings, then you should put it in a liquid asset, so you can turn it into cash when you need it.
What is a liquid asset you ask? It’s an investment that makes money for you, but allows you to access your money anytime you want eg. FairSave by FairMoney (more on FairSave later).
Today I’ll be touching on what emergency savings are, why they are so important and how to start one,
Vamos!
Now that we are clear on what emergency savings and an emergency account is, we’ll go ahead to explain how to build your emergency savings and how much you should save.
How to build an emergency fund
- Start by allocating a portion of your salary. This portion should be taken out the moment you get your paycheck. It should be done before you start spending,not after, as you may not have anything else to save. We hear your protest that “your salary is not even enough!” Yes, but trust us, you won’t even miss the 5 – 10% you decide to put in your emergency account.
- Once you decide how much to put, automate it. If you are the type that will change your mind on a tough month, then automate it by putting a standing order on your salary account to avoid stories that touch.
- Save your “extras”. If you get a bonus or a cash gift, form the habit of saving half or a third of it towards your emergency savings
Grow your emergency savings. Yes, your savings will grow every month as you put more money in, but another way to grow it is to put it in a savings wallet like FairSave, that pays you 10% P.A on your savings and doesn’t have “bank charges”.
How much should be in your emergency savings account?
The goal is 6 months living expenses.You see, there are different levels of unexpected problems. One of them is getting fired from your job. While no one prays for this to happen to them, it does happen and it’s better to plan for it. Having at least 6 months living expenses saved will help you keep paying your bills while you get another job. It is believed that 6 months is the average period to get yourself another job.
If you find that you’ve lost your job or are already in a situation requiring immediate financial assistance, then an emergency loan might be the way to go. This loan can help you stabilise while you sort the situation and put in more permanent measures, like the emergency savings account.
Emergency savings isn’t a nice to have, it’s a must have. It’s a recommended habit for every adult, as adulting can hit us with a lot of blows. But with emergency savings, you get a soft landing that will help you stand up again and give you the courage to move forward.
FAQs:
Where to save emergency funds?
An account/wallet that is easily accessible and doesn’t deduct charges from you is best. FairSave ticks all the requirements for an emergency fund. It gives you full access to your money while giving you 10% P.A interest on your savings. It also doesn’t deduct charges.
What is FairSave?
FairSave is a savings product from FairMoney MFB that helps you make money everyday.
What are the advantages of FairSave?
- FairSave gives you 10% interest per annum which is paid daily
- FairSave doesn’t deduct bank charges
- FairSave doesn’t charge a penalty on withdrawals
- FairSave allows you withdraw your money whenever you want
How to open a FairSave account?
Simply download the FairMoney account,
Sign up,
Click “Access FairSave on your home page”
What is the difference between a FairMoney account & FairSave?
FairMoney account operates like a current account. It’s for your day to day spending while FairSave is a savings wallet that helps you make money everyday and also gives you complete access to your money, because emergencies happen.
Reach out to us for more queries.
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