Emergency fund boosts your chances of attaining financial freedom
Setting aside an emergency fund, which is also called a reserve fund or saving for rainy days, is one major step you need to take to protect your financial stability. The whole concept of having an emergency fund is having a savings account where you put aside funds that will cover you if an extraordinary incident befalls you. An unparalleled event has to do with major hospital bills, loss of a job, and loss of possessions that your insurance plans couldn’t cover.
Some people are of the opinion that having an emergency fund is not feasible, coupled with all the expenses they have to put up with. However, there is nothing that is not achievable when it comes to taking control of your finances. All it entails are good planning, strategies, and self-discipline. Having an emergency fund is a good financial decision to take as you do not know what is going to happen in the near future. And no one wants to live at the mercy of life’s twists and turns.
Without savings or putting aside funds, a financial tremor, even minor could set you back and leave you frustrated and if care is not taken might, in turn, lead you into going for a loan, which can potentially have a lasting impact. Some go as far as liquidating some of their investments in other to cover the cost. The amount you need to have in an emergency savings fund depends on your situation. Think about the most common kind of unexpected expenses you have had in the past and how much they cost. This may help you set a goal for how much you want to have put aside.
Here are some strategies that will enable you set aside fund for rainy days
1. CREATE A SAVINGS HABIT
Building a savings of any size is easier when you are able to consistently put money away. It is one of the fastest ways to see it grow. If you are not in a regular practice of saving, there are a few key principles to creating and sticking to a savings habit: one of them is setting a goal like how much you want to actualise in a given period.
You need to have a specific goal for your savings, you can start by reflecting on your past and how much you have spent on an unprecedented event, that will serve as a guide to how you can set your goal and the amount you want to put aside.
There are a number of ways to save like, automating your account so that a specific amount of money will be deducted from your account weekly/monthly into your savings account.
Another way is by getting a piggy box/Kolo whereby you make it a habit of saving a particular sum of money daily, weekly, or monthly. And if done consistently you will be amazed how much you are able to save in a short while.
2. TREAT IT LIKE A BILL
Every month, we have a budget set aside on things we want to spend our funds on, such as utilities, groceries and mortgage payments and investment, etc. It is also imperative to add your emergency fund to your budget. You may decide to set aside 5 per cent of your budget for emergency purposes.
3. CONTROL YOUR EXPENSES
Cutting down on your expenses is a good strategy if you want to build an emergency fund. Controlling your expenses is a major challenge for some people. A lot of people live above their means, just because they want to impress others. In as much as looking good and taking care of oneself is very important, it should, however, be done wisely. Instead of you spending so much on things that will become a liability, one may decide to save part of it in your emergency fund account or putting it in your piggy box/ kolo.
You must be able to give an account of all your expenses, once you are able to do so, you are on your way to financial freedom. Just envisage in your head, what if you lose your means of livelihood, will you still be able to maintain the flamboyant lifestyle you are used to and is there enough fund left for you to fall back on if this were to be the case?
This should also guide you when you go for your grocery shopping. Learn to cut down on a lot of things you can do away with. Bargain on things if you have to and save the little change left from your shopping.
4. EARN MORE MONEY
Money is mathematical, not magical. To fund an emergency fund creatively you either need to spend less or make more (or both). If you really need an extra income aside from your paycheque, you may decide to get a weekend job, do the Uber job with your own car, have an online business where you sell goods, etc.
All these in turn will give you extra money to put aside in your emergency fund. One might find it really hard to save for the rainy day after putting aside funds for both variables and fixed expenses but having another stream of income will aid in the process and make it so seamless for you.
Finally, one good thing about building an emergency fund is that once you have the total amount saved in your emergency fund, you can practically forget about it until the need arises. And you can channel any other resources to your fixed expenses. However, if nothing extraordinary happens in a year, you can decide to split all the funds you have saved for emergencies and put half of it into your fixed expenses or invest them.