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Why You need an Emergency Fund
Small and Medium Enterprises (SMEs) have been heavily affected by COVID-19 pandemic, due to the closures and reduced working hours that had been recommended to curb the spread of the virus. At least one million Kenyans have lost their jobs or have been put on indefinite unpaid leave as the Covid-19 pandemic morphs into a major jobs crisis.
The current pandemic serves us a sobering reminder that life can throw our way unexpected events with devastating financial effects like emergency medical bills, job loss, a death in the family, abrupt car and house repairs, emergency trips, time taken in-between jobs, natural disaster among others.
Emergency fund is money put aside to cover you in the event of an unexpected financial blow. The amount to set aside depends on a number of factors which include; your current income, costs and bills, lifestyle, and number of dependents. If you work in a field where layoffs are common then it’s wise to save more rather than less. It is recommendable to build your emergency fund to cover at least three to six months of expenses. However, if that seems daunting, then you can start with a smaller, more attainable goal.
Choose the right account to hold your emergency fund; one that is interest-earning and you can access your money in case of a need.
The best way to build your emergency fund is regular and consistent contributions through automatic transfers from your current account to the emergency fund account. You can also commit to contribute to your emergency fund when you receive sums of money outside of your usual income, such as gifts, bonuses, and tax returns.
Below are a few reasons as to why you need to build your emergency fund;
1. Shields you from taking unnecessary loans
When hit by an unexpected financial blow, it’s natural to try “fix” it through credit even without putting much into consideration like loan terms and repayment plan. Bad loans as discussed in our previous articles are more expensive and leave you in a bigger financial mess than you were before you took it. An emergency fund helps you cover the things you didn’t budget for, like car repairs or medical costs.
2. Helps keep your budget on check
Having set some money for emergencies when setting out your budget does not shield you from future uncertainties fully. An emergency fund helps you adjust your resources to handle the arising needs without adversely affecting your budget.
3. Peace of mind
An emergency fund gives you peace of mind if you lose your job, become too ill to work or have to cover a major car or home repair. It also allows you time to make sound judgement on how to get back on your feet.
4. Maximize opportunities
“In the midst of every crisis lies great opportunity” Albert Einstein
Emergency fund can help you maximize fully from opportunities rising up in the market. Take an example of people who were able to produce masks and sanitizers within the first few weeks of the outbreak of Covid-19.
5. Allows you to focus on long-term financial goals
If you are working towards a goal like owning a home or starting a business, an emergency fund saves you from eating into those savings when unexpected financial expense crops up. This means that your on-going projects are least interfered with.
At Amica we have Futures Savings and Treasure Accounts that earns you interest and money is available on need basis.
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