Emergency Funds (March 25, 2019)May 25, 2019 at 6:35pm
by Proshare Foundation
May 25, 2019 at 6:37pm
Life is an interesting journey, full of ups and downs. The road might be smooth, beautiful and enjoyable today, and tomorrow, it would seem like all hell broke loose, and the journey seems dark, potholes and bumps at every point. Expenses never seem to end. As much as we prepare for life’s events, the unexpected can happen. Your car could break down and require expensive repairs. You could lose your job, Your loved one might have an expensive medical bill to take care of, You could damage your smartphone and have to replace it.
Any one of these unplanned expenses could shake your pockets and cause a deep hole and impact your budget by hundreds or thousands of naira, dollars or pounds.
The decision to attend to this unplanned emergency could create financial stress, which your pocket is not prepared for. That is where an emergency fund is needed.
Emergency fund is simply cash reserve saved up for the UNEXPECTED.
This money that you have saved will help you cover unexpected costs that come with everyday life. Many of these costs cannot be predicted, but nearly everyone will face these kinds of expenses throughout their lives. That’s why having an emergency fund is always worthwhile, because you won’t be caught unawares without the means to resolve the financial situation and you don’t need to borrow so you don’t get into debts.
- GOOD SCENARIO: At a minimum for a single, you should have 3X what you earn or 3 months salary or 3 months living expenses
- BETTER SCENARIO: For a family, 6X what you earn or 6months of your expenses.
- BEST SCENARIO: For HNIs, 12X what you earn or 12 months of living expenses.
This would help you survive for that particular period of time, without a strain on your finances and on your person and health, especially in the case of loss of Job.
WHERE SHOULD YOU KEEP YOUR EMERGENCY FUND?
HOW DO YOU START AN EMERGENCY FUND?
We would recommend that you open a savings account that you do not have an ATM card, internet banking or Mobile banking app attached to it, it is not accessible except on emergency. You can give instructions to your bank/accounts officer, to allow withdrawal upon prove that you are responding to an emergency.
- start by setting a monthly savings goal and set up the funds for automatic transfer to this savings account designed for the purpose. That way, you will be saving money without even thinking about it. You will want to take a close look at your finances to ensure that you are not saving so much money that you can’t pay for other everyday costs, or so little that your savings won’t cover a potential emergency.
WHERE SHOULD YOU KEEP AN EMERGENCY FUND?
Savings accounts are the safest place to keep your emergency fund so that you won’t be tempted to dip into it. Emergency funds should be kept fairly liquid so you’ll be able to access them quickly if an unexpected expense comes up. If you need to use your emergency savings, you’ll be glad they’re available.
REASONS FOR HAVING AN EMERGENCY FUND
• Protects your family in case of a job loss.
• Provides reserves for health or other family emergencies
• Gives you the ability to pursue attractive investment opportunities as they come along
• Helps you negotiate lower prices on major purchases
• Keeps you from losing money since you won’t need to sell other investments during down markets, challenging times or bad economy.
• Allows you to avoid tax penalties from having to pull money out of retirement accounts too early
• Reduces stress, which increases health and well being
• Eliminates numerous marital arguments
• Creates a cushion to use for major household repairs
• Enables you to pursue bargain buying at someone else’s expense (someone who desperately needs cash)
So the question now is: Can i still put together an emergency fund if i am in debt, unable to save, have investment goals, can barely meet my expenses?
There are so many excuses for not been able to achieve this very IMPORTANT financial goal.
The answer is YES you can, if you have a workable financial plan in place.
Kindly send your questions and we would be glad to answer them on the platform. Thank you.