Simplified Guide on How to Build an Emergency Fund
By Evans | Jun 22, 2024
Many people (including me) think they need to be a real grown-up (you know the kind of grown-up I am talking about; someone with a family and a big job) before they could even think of going beyond saving. So they would save a little money but still use it all when needed. And by a need, I mean that sometimes when one would feel the need for a new phone or a short trip was enough to misuse all the money they had painstakingly saved. Now, I know better. And even though I wish I started earlier, I believe that you are never too old or for some, too young to start your journey towards financial freedom. Can I tell you where to start? By building an emergency fund!
What's an Emergency Fund?
Before we go any further, let us first define what an emergency fund is. This is a pool of savings that is often set aside to cater for financial emergencies. In life, unexpected things will always happen. You can find yourself laid off and you need to survive for a while before you get a new job. It can even be an illness or any other family or individual emergency. When such occurrences happen, we tend to pour all we have saved, sometimes even pulling out investments to cater for the unexpected costs. However, with an emergency fund, you do not have to worry when financial emergencies come, since you have a fund that has been dedicated to doing just that.
How to Build an Emergency Fund
Set a goal
You need to determine how much you need to save for this particular fund. I would recommend that you save 3 to 6 months' worth of your living expenses. This can help ensure that, for instance, if you were to lose your job, you can survive at least for six months without straining as much, as you look for the way forward. However, your goal can also be influenced by factors such as the income you get, your expenses, and other financial obligations. If you have fewer obligations and expenses, you can save more on your emergency fund. However, if your income is small and you have more obligations, you can start small and increase your target over time.
Track expenses
Have you ever received money buy you could not account for how it was spent? That happens when you do not track your expenses. Tracking expenses will help you to identify the areas that you can cut back, leaving you with more money to save. For instance, if you realize that you spend a lot of money eating out, you can choose to cook regularly, thereby saving some money.
Automate your savings
Sometimes it is so difficult to save once you have that money in your pocket. If you are like me, you may start wondering,“Why do I need to save for the unexpected when I can just buy myself something nice? You know? Give back to me? Automating your savings will help ensure that such temptations do not get the better of you. For instance, you can choose to set up automatic transfers from your checking account to the emergency fund in such a way that the money is automatically transferred the minute you receive your salary.
Keep your funds accessible
Remember that the entire goal of having an emergency fund is to ensure that you can access it in case of an emergency. You can have your emergency fund either in an MMF, a bank, mobile platforms such as M-shwari, or even a SACCO such as Koilege. Such platforms will help ensure that you can easily access your money, while still ensuring that you earn an interest from it all.
What to consider when choosing where to open an emergency fund
When it comes to opening an emergency fund account, you need a financial institution that you can trust. Such an institution must be able to give you worthy benefits as compared to other institutions. Here is what you should consider:
Interest rates
You need to save for your emergency fund in an institution with competitive interest rates. Your fund needs to grow over time, meaning that you should take time to compare interests offered by institutions such as traditional banks, online banks, credit unions, and SACCOs among others. Koilege is a worthy platform to save your emergency fund since it offers you an interest rate of up to 20%
Fees
Every financial institution will charge your account for charges such as monthly maintenance fees, and transaction fees among others. You need to find a platform that does not have unnecessary costs. The goal is to save for a rainy day, not have your hard-earned money wasted on costs that make no sense.
Security
Imagine that you have saved your money by cutting down on expenses and even denying yourself some luxuries, only for you to be told that your money is not available when disaster strikes. You need to save with an institution that has insurance coverage for deposit accounts to ensure that even when bad times come, your money is still safe.
Why Koilege is the Best Option
Koilege is dedicated to walking with you on this journey to financial freedom. With Koilege, you are assured that your emergency fund will grow and that it will also be accessible whenever you need it. Not only that, but Koilege has additional features that make it easy for you to save with them. With Koilege, you can link accounts for easy transfer. This means that when you need the money in your emergency fund, you do not need to go through a complicated process to get it.
Borrowing against Your Emergency Fund
Borrowing against your emergency fund should be your last resort since the goal of such a fund is to save for a rainy day, and borrowing against it beats its purpose. However, life does not work as we would wish and at times, you might find yourself with no other option but to borrow against that fund. In such a case, you need a financial institution that will understand your needs and help you achieve them.
Koilege offers great options for borrowing against your savings. With its mobile app, you can easily borrow up to 20% of your savings instantly. If you have a savings account, you can borrow up to 100k without needing another guarantor. Being able to self-guarantee yourself is what makes Koilege the best option for when you need to borrow against your emergency fund. In case you find yourself in a fix and you need more money than you have in your savings account, Koilege can still provide you with the best option in the market. For instance, lets say your fund has 100k, and you need a 300k loan. All you need to do is to find two guarantors and in just a few hours, you will have the 300k in your account, and such at friendly rates.
Final Thought
It does not matter where you are in life, your obligations, or your income level, you need to have an emergency fund. An emergency fund will help ensure that you do not lose your mind when you get a financial emergency. With Koilege, you are assured that your emergency fund will grow, thanks to the high interest rates. You are also assured that you can instantly access your money when disaster strikes. But more than that, you have the assurance that in case you need to borrow against your fund, you can get a loan with the most-friendly requirements. The journey towards financial freedom starts with one step. Let building an emergency fund with Koilege be your first step.
