With the unplanned pandemic, dwindling economic situation, high inflation rate, hike in prices of goods and services, impromptu billings from family, friends, main and side boos; there is a need to shield oneself from unnecessary “shalaye” (explanation). The unexpected expenses that may spring up at any time are the reasons we need an emergency fund.
An emergency fund is a pool of fund set aside or saved up for unexpected expenses. This fund is treated like a separate savings account used to cater for unforeseen and unplanned expenses. An emergency fund is quite different from your regular savings account where you put your money for outings with friends, beach party, shawarma and burger cravings, purchase of the new iPhone, etc. An emergency fund is set up for the main purpose of contingent expenses such as loss of job/income, medical bills, emergency home repair, sudden repair of phone or car, unplanned travel expenses, death in the family, etc.
It is recommended you maintain an emergency fund to avoid being stranded in times of need. Having an emergency fund enables you afford unexpected expenses without having to borrow. For instance, there were loss of jobs when the pandemic happened which caused a lot of people to go into debt. This event could have been avoided or at least, better managed, if maintaining an emergency fund was treated as a priority prior to the pandemic. Having an emergency fund should be a habit and be treated as important as savings and investments.
There are several factors that should be considered to determine the size of your emergency fund. Factors such as your lifestyle, income, expenses, family size, debts, etc. A percentage of your monthly or periodic income should be apportioned to your emergency fund in your budget. In the long run, you should plan to have your emergency fund’s worth capable to finance your three to six months’ contingent expenses.
In maintaining your emergency fund, it is recommended you save it in a separate account than your regular savings account. It is also advisable to have your funds in an account that promises a periodic interest, safety of your funds and easy accessibility to your funds when needed. It is also advisable to have an automated emergency fund account that allows you keep track of your funds as well as not defaulting in funding your account periodically. There are several apps that can be utilized for such purpose such as Cowrywise, Piggyvest Flex Wallet, V-Bank, etc.
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