BLOG
backWhat's the first thing that comes to your mind as you scream "AH!!" after your car suddenly gets hit by a clumsy driver?
Or when your day gets interrupted by a phone call from home requiring your urgent financial attention?
That's right! Your mind quickly does a 360-degree search on how to get money to fix or handle the situation. Life can be interesting, but it can also throw some unexpected expenses your way.
In fact, an Enhancing Financial Innovation & Access (EFInA) study shows that about 3 out of 5 adults experience a financial shock caused by a health or economic event. Having an emergency fund where you stock up cash for rainy days is highly beneficial and provides a safety net to fall back on. But you might wonder where to start from.
It's okay to start from zero. This guide will show you practical steps to build an emergency fund. Let's get started!
KeyTakeaways
About 3 out of 5 adults experienced a financial shock or an event that had a large negative impact on their finances in the past 12 months, mainly driven by economic and health-related shocks "- EFInA.
Experts often advise that you save money to cover at least three to six months' worth of living expenses in your emergency fund.
Keeping money in an emergency fund savings account helps you avoid taking unfavourable loans or dipping into funds set aside for other expenses in difficult times.
Ensure that you regularly access your emergency funds and adjust the amount accordingly.
What is an Emergency Fund, and Why Should You have One?
An emergency fund is money you put aside in a savings account (which can yield interest) to finance unexpected expenses. See it as your financial umbrella for when life's unplanned expenses come your way.
Why should you have an emergency fund? Expenses such as sudden medical bills, job loss, home repairs, and many more can arise anytime.
Therefore, keeping money in an emergency fund savings account helps you avoid taking unfavourable loans or dipping into funds set aside for other expenses in difficult times.
Experts often advise saving money in an emergency fund to cover at least three to six months of living expenses. But don't be alarmed yet! You can start with any amount; what matters is regularly setting something aside to cushion expenses.
Step-by-Step Guide to Building an Emergency Fund
Setting up an emergency fund doesn't have to be complicated and leaves you feeling overwhelmed.
Follow these practical steps to begin building up one today;
1. Assess Your Monthly Expenses
First, you should understand your monthly expenses, which could include rent, food, transportation, and utilities. By having a clear picture of your expenses, you'll be able to determine how much you can set aside for your emergency fund.
2. Set a Realistic Savings Goal
The first step to success in any aspect of life is to have a clear and realistic goal. Setting up an emergency fund with three to six months' expenses might be challenging if you're just starting. But don't beat yourself up about this! You can start from one month, then increase it to two months the second time, and then grow from there.
By consistently saving money in this account, you can gather the motivation you need to keep going for even higher amounts. Remember to outline what kind of expenses can serve as an emergency and intentionally build up your account.
3. Open a Dedicated Savings Account
You might ask ''where can I keep my emergency fund?" You can easily do this in a separate, high-interest-yielding savings account such as the Moniepoint savings plan on your personal or business bank account.
You can even open up to 20 active savings plans on your account to help you demarcate different savings goals simultaneously. Using a separate and reliable savings account lets you avoid dipping your hand into other funds you've set aside for other reasons.
Use savings plans that align with your needs and allow you to track your money while staying accessible for emergencies.
4. Automate Your Savings
Out of sight, out of mind, right? One of the best ways to save money is to automatically save it without having the opportunity to ponder if you should save it. Get a savings plan that allows you to set up a process of automatically withdrawing a specific amount from your monthly income.
Plan properly and set a goal to avoid overspending on necessities. With an automatic savings account, you don't even have to worry about withdrawing a lot of money, and it'll help you build consistency over time.
5. Start Small and Stay Consistent
You've probably heard the saying, "Little drops of water make a mighty ocean." This saying can be applied to building an emergency fund. By starting small and remaining consistent, you'll be sure to meet your savings goals and avoid the temptation to abandon your savings routine.
Whether you want to save N1000 or N3000 weekly, monthly, or in any other way, the key is to make it a habit and not overly struggle with it.
6. Reassess and Adjust Your Fund as Needed
As life goes on, changes happen. So, ensure you regularly access your emergency funds and adjust the amount accordingly. If you get a salary raise, use part of the fund, or increase your contributions, always reassess your savings to suit any unexpected expenses.
It's important to remain flexible and monitor your savings, whether through account notifications or manually with a pen and paper.
Tips for Growing Your Emergency Fund Faster
You can build your emergency funds quickly without waiting for your paycheck every month. By using the right strategies, you can reach your savings goals sooner.
Here's how;
1. Cut Down Unnecessary Expenses
Take a second look at what you spend on and decide if you can do without it. Do you really need to order takeout food daily, do you need those application subscriptions, or do you need to shop for more clothes this month?
If your answer is no, then you can save the funds instead. Rechanneling a small amount of money from unnecessary spending to your emergency fund can make a huge impact and help you avoid debt.
2. Use windfalls like bonuses or tax refunds
Now, you really don't have to spend all that 'shawarma money' your friend lovingly sent you, do you? If you receive any unexpected income, such as a tax refund, cash gift, bonus, or any other unexpected windfall, save it or at least a portion of it. This way, you can top up your emergency fund and also cut back on unnecessary expenditures.
3. Consider a side hustle or additional income stream.
If you have some time on your hands, you can convert it to financial growth. You can start a side hustle, such as freelancing, selling off items you no longer need, or starting a small business you can easily manage.
This way, you can save your proceeds in your emergency fund and ultimately reach your savings goals faster.
Build your Emergency Fund using the Moniepoint Savings Plan
If you're ready to kick start your emergency fund journey, the best place to do this is in a savings account with high interest rates.
By using the Moniepoint savings plan on your Personal or business account apps, you can manually or automatically save money while yielding interest as high as 16% per annum. You can choose from our various savings features, such as;
Flexible Savings: A flexible savings plan allows you to deposit and withdraw funds with minimal restrictions, making it ideal for your adaptable savings options. When you save money on the Moniepoint flexible savings plan, you can earn a flat interest rate of 9% P.A if you do not withdraw over four times in a month.
Locked Savings: When you save money on the Moniepoint Locked savings plan, you can earn a flat interest rate ranging from 9% to 16%. A locked savings plan allows you to deposit funds that cannot be withdrawn until a set period ends. You should also note that breaking the plan results in losing all your accrued interest, with funds credited to your Moniepoint account within 48 hours.
Fixed Savings: A fixed savings plan allows you to lock funds for a predetermined period at a fixed interest rate. It's ideal for specific financial goals, and it ensures steady growth while promoting disciplined saving. If you break this plan, however, you risk forfeiting your accrued interest while your funds are credited to your account.
You can easily set up a Moniepoint savings plan by following the following steps;
Log in to the Moniepoint app.
Navigate to the Savings module.
Select Flexible, Fixed, or Locked Savings.
Click on Start Saving.
Enter the plan details.
Agree to the Terms and Conditions.
Click on Create Plan.
Bottom Line
Your emergency fund is your safety net in unexpected circumstances. By following the listed steps, such as using an interest-yielding savings account, starting small, staying consistent, etc., you'll be sure to properly set it up in no time.
Remember, it's not about the big amounts; it's about starting early and using the right platforms. Sign up to Moniepoint Business and Personal banking apps to access a high-yielding savings account for your emergency fund.
