There are generally two kinds of people in life: the ones who life happens to, and the ones that happen to life. Well, in truth, life happens to every one of us at some point and we never get the memo on time, but what makes one group of people different from the other is that: one group knows that life always happens, so they are always preparing for it, while the other group well, they also know that life always happens, but they are always praying against it. While prayers are key and germane, one thing life teaches us as we advance in age is that emergencies are not a question of who is deserving or not deserving of it, but of when it will visit; and we can never be fully prepared.
Therefore, an emergency fund is a way of pretending to be prepared. It is cash stashed away (usually worth many months salary) to keep us afloat when unanticipated things such as a health crisis, death, job loss or divorce occur, lest they leave a dent in our finances and our standard of livelihood.
Below are some quick tips to get us started on emergency saving:
- Take your time, but once you start, don't stop:
Don't think because the name screams emergency, you have to be urgent about it. No. Take your time to get acquainted with the idea of saving for a rainy day. You can read as much as you are comfortable with before getting started, but once you commit to it, be sure to be consistent about it.
It is better to start small than not start at all: You really don't want to be caught unawares. So while your monthly salary may barely be enough to cover your basic expenses, talk more of saving for the known future and unforeseen calamities, don't be discouraged. Start small, start little, but make sure that it grows as your income base grows. Don't underestimate life's surprises.
- Be deliberate about how you keep and grow your fund:
Don't save it in your "kolo". Don't give it to a friend or family or neighbour to keep until you need it. Instead, consider opening an emergency fund account (preferably one different from your regular account). When the money has grown substantially, consider exploring low-risk, high-interest investments such as government bonds. Fixed deposits are not a bad idea but you would want to factor in the potential cost of withdrawing your funds before maturity and make sure that the potential benefits exceed the potential cost. Furthermore, if you must obtain a debit card to facilitate withdrawal or payment when an emergency arises, don't make the card easily accessible lest you squander your emergency fund before the real emergency calls. The idea, therefore, is accessible but not too accessible; and importantly, that it grows as you grow.
- Consider activating automated transfers:
Many banks offer the option of making automated monthly payments. Treat your emergency fund as a bill/levy whose payment you cannot bargain (like electricity bills, PAYE tax), which makes the transfer into your emergency fund account almost painless. It will not be easy. You will be tempted to pray and hope you never have to keep an emergency fund, but life will happen with or without your consent. So expect it!
Do you have an emergency fund? Tell us when you started it and how the journey has been.