EMERGENCY FUNDS: What, Why And How Much?
Tayo received the shock of her life when she learnt that her father had been rushed to the hospital for urgent treatment. He had a heart attack while working in the garden.
Unknown to Tayo, her father’s medical treatment had been delayed due to her oversight in failing to renew her HMO plans after changing jobs two months ago. This oversight resulted in her father and a few siblings losing access to the prompt and complimentary medical checkups they had previously benefited from. This unexpected situation greatly affected Tayo, almost causing her to lose her composure.
However, she immediately remembered that she had some funds in one of here financial accounts; thanks to her wise saving habits which she’d been diligent at for about 2 years. Tayo had saved enough to, not only help cover for the medical expenses to be incurred from the treatment of her father, but to also cover for payment of her house rent which expires in few weeks.
Wow, running back to check on how much she had saved saw Tayo thanking her stars for the lessons her now ill-dad, taught her about having emergency funds.
Life is so full of unexpected happenings and events that sometimes leaves those caught up in it in a web of perplexities and utter dismay. People are often hit hard because they either do not know about or have emergency funds, lack understanding of the importance of having one or are not disciplined enough to grow and maintain one.
What is an Emergency Fund?
An emergency fund serves as a readily available pool of funds that you can tap into when faced with unexpected setbacks. The term “readily available” doesn’t entail stashing cash under your mattress, rather, it signifies liquidity. This fund acts as a financial safety net, specifically reserved for unforeseen circumstances like health issues or job displacement.
The rule of the thumb as given by financial advisors is for an individual to maintain an emergency fund equivalent to three to six months’ worth of expenses in an account easily convertible to cash. This means that money kept in investments cannot be referred to as emergency funds.
When should I start an Emergency Fund?
The answer is right now, if you don’t have one already. Yeah, it might seem like an uphill task with the economic situation and inflation but the question to ask yourself is, will life think of inflation when it decides to spring one of its surprises? Seriously, having an emergency fund is not something you should put off any longer, if setting aside a huge amount seems overwhelming, start by putting small sums away till it grows into a large chunk.
Why do I need an Emergency Fund?
Except you’re a trust fund baby, the response here is pretty obvious, but best believe even trust fund babies have and understand the importance of an emergency fund or at least someone does on their behalf. Imagine, you lose your job and you’re now plagued with thoughts of how you’ll feed the next month, this is the sort of security such funds provide. An emergency fund is essential for providing a safety net in the face of unpredictable events, ensuring financial security, preventing debt accumulation, covering job loss or income reduction, maintaining progress towards long-term goals, seizing opportunities, and ultimately, fostering overall financial stability and peace of mind.
How much do I need in an Emergency Fund?
There is no one size fit-all answer to how much should be set aside from time to time by an individual for an emergency fund. However, the general rule of thumb is to save three — six months worth of your essential monthly expenses enough to cover for your rents, utilities and food budget. More so if you have a stable job and income, you might not need to save as much as one who is self-employed and has no insurance.
One blogger broke down the expenses and for an individual living in Lagos and advised on an ideal emergency fund for her. The person assuming a fairly comfortable life will have an estimated monthly expense of ₦200,000 and annual expenses after tax of ₦2,400,000. To maintain the same lifestyle for three to six months, the person would need between ₦600,000 (3 months) and ₦1,200,000 (6 months) in her emergency fund.
It’s important to note that these calculations are estimates and can vary based on individual circumstances, lifestyle choices, and inflation. Building an emergency fund tailored to your specific needs and expenses is very important.
Can TingoPay help you with creating, maintaining and growing an Emergency Fund?
Yes!
Here is HOW:
On the TingoPay wallet, you can save excess cash you do not need for as long as you want, hoping that one day you will get access to them when you need them. With our app’s security features, you are sure to have all your funds securely saved until you need them.
