How to build an emergency fund

How to build an emergency fund

Everyone needs to save for the unexpected. When you have nothing in reserve, anything unexpected becomes an emergency that  can make one to go a-borrowing.

It could be a job loss or medical bill — or something as small as a car repair or a lost phone. A financial buffer can keep you afloat in a time of need and let you recover without going into debt. That’s why an emergency fund is more

How big should my emergency fund be?

The exact answer to this depends on your financial circumstances and how much insurance you have, but a good rule of thumb is to have enough to cover three to six months’ worth of living expenses. This can give you enough time, for instance, to find a new job.

Anything in the bank is better than nothing — even N5000 will get you out of many troublesß that would otherwise put you in the hole.

Start small, says an expert, but start.

Where do I put my emergency fund?

Since an emergency can strike at any time, having quick access to your cash is crucial. Consider a savings account, since the money will be safe and you’ll be able to withdraw it without hassle. This should be a separate account from one you use daily so you’re not tempted to dip into your reserves.

What steps do I take to start an emergency fund?

To help you save for the raining days, nerdwallet.com, an online financial management platform, provides some steps to follow in order to build emergency fund.

Set a monthly savings goal

This will get you into the habit of saving regularly and will make the task less daunting. Contributing a small percentage from each pay, for instance, is one way to do this.

Keep the change

When you get N100 and N200 after breaking N1000 note, drop some in a jar at home. When the jar fills up, move it into your savings account.

Save your tax refund

The average refund, for those that get it, can give a good boost to your emergency savings. When you file your taxes, consider having your refund directly deposited into your emergency account.

Cut back on costs

If you’re falling short on saving, see which parts of your monthly spending you can trim. Some ways to do this include carpooling, cooking meals at home, saving leftovers and avoiding small daily purchases like takeout coffee. Put the money in your emergency fund as you save it.

Get supplemental income

If you have the time and willpower, get a second job or sell unused items at home to accumulate more money for your fund.

Assess and adjust contributions

Check in after a few months to see how much you’re saving, and adjust if you need to put in more. This is especially important if you go through a major life event such as marriage or a move to a new city.

An emergency fund is for emergencies only

Emergency is something that affects your health or ability to earn money.

What’s not an emergency?

Holidays, birthdays and mental pick-me-ups for yourself or significant others.

A car repair if you can hitch a ride or take the bus.

A great deal on something you don’t need.

Expenses that aren’t surprises, like car insurance.

Draw a line between savings for emergencies and savings for anything else. In fact, once you’ve hit a reasonable threshold of emergency savings,  an expert says, it’s a good idea to begin another account for irregular but inevitable items such as car maintenance, vacations and clothing.