Build An Emergency Fund; Part2

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3 years ago

An Emergency Fund is not there to make you money but to act as a financial cushion that protects your long term investments from short term unexpected expenses.

The following are the guidelines to help you

  • Calculate how much you would need to survive if you lost your job or income from your business. What do your living, expenses add up to each month? E.g rent and utilities.

  • Strictly define emergencies. Your car breaking down or having to pay an unexpected hospital bill qualify as emergencies.A phone upgrade, an impromptu trip to Dubia or those YSL pumps on sale do not qualifies.

  • Shore up your emergency fund with windfalls like cash gifts, bonuses or extra work done. I.e when you get money you were not expecting, Commit it using a percentage ( at least 20%) of it to top up your emergency fund.

  • Do not put it in a risky asset class, i.e stocks. It is not there to make you money.

  • The most important elements of an emergency fund are liquidity and safety, not return, so do not take risks to earn more or sacrifice liquidity.

  • Look for high interest savings accounts or money market accounts that preserve your capital and give you a reasonable return.

I hope this little thought of mine helps the readers.like and subscribe for more articles.

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