Emergency Funds are incredibly important in every person’s life. An emergency fund essentially covers the surprises of life whether that’s a medical emergency or something as simple as repairing your car. Having a stash of money you can rely on can really go a long way.
How to build an emergency fund
Here are the steps you need to build an effective emergency fund;
Calculate how much you’ll save
Before you start you need to calculate how much you want to save for emergencies. You can never really know what emergencies will come your way. However, you can get a general idea of them by calculating how much you’ve spent on emergencies in the past.
Set a monthly savings goal
Once you have been able to successfully figure out your holistic savings goal you can now begin to break the cost down per month. For instance, if you calculated you need to save N240,000 in a year for emergencies you would have to save N240,000 ÷ 12 = N20,000 a month.
If you’re part of the “I’ll save later” crew it is time to repent. You’re never going to get any money saved that way. The trick to savings is to save immediately you get your salary. Once you set aside some money specifically for your savings the odds you’ll be tempted to spend it on other things would be low.
Make it automatic
Having a plan for your emergency fund is good but executing the plan is even better! You need to stay consistent for this to be effective. To help ensure consistency, you can use an app to automatically save some amount of money for your emergency fund.
Keep the change
A great way to save money if you spend a lot of cash is to take whatever change you have from the day and put them in a box or jar. It can be as little as N20 or N1000, When the container fills up you can take it to a bank and deposit the money.
Assess and adjust contributions
Check-in after a few months to see how you’re doing. Is your plan effective? If you’re not able to save as much you planned maybe you should try adjusting. If saving every month is difficult for you, you can make it every 2 months. Whatever is most comfortable for you. ’
Financial storms are part of life and it’s our duty to make sure we’re as prepared for them as possible. Saving a little cash today can send a rainy day way.