Ever thought about starting an emergency fund for those dire moments in life when an unexpected expense emerge?
If the answer is no, ask yourself how you will be able to settle an account of a couple of thousand shillings. Will you go into debt to get the money? How will you pay your rent should you lose your job tomorrow?
The answer should be “Yes, I am covered. I have an emergency fund set up to contribute to.” This is unfortunately not the case, as many people have yet to see the importance of it.
However, this could be the most vital part of your financial plan, so it would be ideal to have your emergency fund set up as soon as possible.
Before we discuss ways to start an emergency fund, take a look at what an emergency fund is NOT reserved for:
Now that you have a better understanding of how and when an emergency comes into play, take a look at how an emergency fund can get started.
Dump the plastic for cash
An easy way to start saving for an emergency fund is to use cash instead of your credit card. It is believed that people are accustomed to using their credit card instead of cash. With the use of cash it will make it easier to save the change and have it supplemented.
You might be surprised to see how the ‘loose coins’ have accumulated into a couple of thousand Kenyan shillings to add to your emergency fund.
Sell unwanted goods:
Do you have goods laying around that you are no longer using? Host a yard sale to make extra cash for your emergency fund.
An important notice is to bank your savings as you may be tempted to use them.
With Christmas just weeks away, people tend to overspend on unnecessary items. Instead of eating out host dinner parties and have guests bring a dish along. Keep in mind that every cent overspent could be added to an emergency fund. Take time out and see where your money is being spent.
This will help you to cut back and save. Starting small could help you put a lot away in the long run.
Bank your savings:
After you have planned your budget, be sure to bank your savings in your emergency fund. This should become part of your routine. If you decide to automate your transfer, send yourself a notification by email or text message.
While you may think of all the lovely things to buy, seeing your money accumulate will be a much sweeter reward.
Review your budget regularly:
Having a budget is of utmost importance to any financial plan, as well as reviewing your budget on a regular basis. This will ensure you whether your saving and spending needs are still in tact with your current financial situation.
While you are reviewing your budget, ask yourself whether you could be saving more.
Long term and short term emergency fund:
You can also decide whether you want to divide your emergency savings into different accounts, for long-term and short-term purposes. This way you can allocate the amount of money for each account.
A long-term emergency fund this can help you to support yourself when you have lost your job, when your working hours have been cut, or when you end up with massive bills caused by a natural disaster. In this case it is advisable to save up to a minimum of six to nine months of expenses, or else you could save for up to 12 to 18 months of expenses.
In other words a long term emergency fund is meant to help you with bigger expenses.
So what is a short-term emergency fund used for? A short-term emergency fund can be reserved for more everyday issues such as, your washing machine breaking down, or if you need car repairs. This is what a short term emergency fund is designed for, to cover these unexpected expenses.
In essence a short term emergency fund is sufficient to cover most low grade financial surprises.
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