A-Z is for personal finance: E is for emergency fund

Far too many of us are completely unprepared for a financial crises and can be caught off guard. No matter how meticulous or organized you are about your personal finances, emergencies do happen when you least expect them and can sneak up on you, disrupting your budget so severely that it can take you several months or even years to recover.

The need for an Emergency Fund

Do you have any money set aside for a “rainy day”? Major car or home repairs, a faulty generator or the more serious events such as the sudden loss of a job, a medical emergency or a death in the family feel even worse when there isn’t enough cash in place to take care of them. An emergency fund will help you deal with such situations if and when they arise.

Where should you keep the money?

It is important that the emergency fund is placed in an account where you can easily draw from without restrictions or penalties. Keeping money in an easy access account takes discipline so avoid using a current account to build your savings as you will be tempted to dip into it to settle your day-to-day bills and expenses.

As far as possible, your emergency savings vehicle should be risk free. Whilst it is important to shop around for competitive interest rates on your deposit, always remember that the primary consideration should be the safety of your funds and not the highest rate of return.

The full text appears in “A-Z of Personal Finance” by Nimi Akinkugbe. Available in leading bookstores including Glendora Books, Laterna Books, Patabah, Terra Kulture, Quintessence, Jazzhole …and online from Jumia, Amazon, Barnes & Noble, Manna Books and AMV Publishing