Just imagine a year or two years from now, the government announces another lockdown and your current employer halved your salary or you could not operate your business and get patronage as you use to or worst still you were unable to earn any income for a period of six months. How do you intend to manage your expenses?.
You see, regardless of the current economic situation and how it has affected your income and overall well-being. it is important that you always work towards building and maintaining your emergency fund. The target amount you’ll be looking to accumulate may vary, but the principles behind building your emergency fund will be the same.
What is an Emergency Fund
An emergency fund is a bank account with money set aside to cover large, unexpected expenses, such as Unforeseen medical expenses. Home-appliance repair or replacement. Major car fixes. And, costliest of all, unemployment.
Experts advise that an amount enough to cover six months of expenses is the minimum to be set aside as emergency funds.
Where to keep your emergency fund
Emergency funds are best placed in savings accounts rather than deposits or investment accounts because:
- You don’t want to face the prospect of ever losing money. So you keep your emergency fund in an account with zero risks.
- Emergency funds are funds you want quick access to when needed, and Savings account gives you that opportunity. Unlike investment or deposit accounts where you might have to give notice before your fund is available for use.
- The savings account is an account with zero fees. You will be better off not depleting your emergency funds because of bank charges.
- Your savings account offers you some income in the form of interest. Although conditions such as numbers of withdrawals per month may be placed on it to be able to earn interest. But you sure don’t have a need to access your emergency fund account often.
Above all, be sure to avoid instant access to your emergency fund so you would not be tempted to want to use the money in the emergency fund account at every need.
Avoid banking instruments like the ATM, USSD, Mobile, Online Banking, and Cheque book on your Emergency Fund account so as not to be tempted to want to access the fund unnecessarily.
How to set up your Emergency Fund – Emergency Fund savings are the best set-up via bank standing instructions. Standing instructions allow you to instruct your bank to debit your salary or main accounts at regular intervals of daily, weekly, or monthly and credit your Emergency Fund account, where you can see your money grow.