Emergency Fund is cash reserve, specifically set aside for unplanned, unprecedented situations. Without adhering to a saving culture, financial shocks like recessions, loss of employment and business closure can set one back to debt financing and can substantially have a lasting empact.
Unexpected financial emergencies like medical bill, phone repairs and replacement, house rent and repairs does require planning. Setting up Emergency funds is a protection gear against financial depression. One is able to recover quickly and on track. For instance globally Covid-19 effects did shutter the economy and several people were left unemployed, however those that had Emergency Fund were able to cope faster.
In most cases individuals who struggle to recover from Financial shocks have no savings, whereas those with even the smallest savings recovered gradually. The amount of funds to set aside depends on the past individual economic situation and current responsibilities. Single individual goals could be different from Married couples with children. While the former saves for one’s future, the latter must think of the entire household henceforth the goals are different.
Monthly salary earners have upper end in regular savings pattern by simply instructing their financial institutions to make percentage deductions. However if your income is inconsistent especially the business informal sector, which makes it difficult to set aside money, don’t lose hope. Start small and take advantage of the good business days to sacrifice money.
How to Start!
For anything to succeed, you need a strategy-well laid knowledgeable criteria. The most important thing, consistency. Make it a habit. Growing your bank account or piggy bank needs consistent sacrifices in putting money away.
- The Goal
Make sure before you decide to save money, you have need for it. For what purpose, when you need it and how much are the questions one must answer. Set achievable goals, something realistic in comparison to your income.
- Calculate Your Routine or Time/Months
Still monthly earners can calculate the time needed and the amount set aside easily by simply calculating the percentage and months worked. However one can simply set specific figure and number of times to save.
- Monitor and Evaluate your Progress
Very important but most people take this step for granted.