Friday, November 6, 2015

Financing your Emergency Fund

TWS||WalletWisdom||With Wahome Ngari

Funding this account requires that it be made the number one financial goal with the aim of putting in up to 10% of your net income into the fund but you can only start with what you can afford for now. 
It is much easier to convert an existing bank account as the pot for the fund, keep adding to it until it is fully funded (equivalent to six months expenses). The mantra for success in this important agenda is: Aim big, start small, start now.

Automating the cash deposits to your emergencies’ safety net account through a salary deduction at source or a standing order at the source bank will increase your chances for success in growing the emergencies fund

The money has to be kept in a safe place where the principal amount is not at risk (buying shares is not one of the options) and the owner cannot succumb to impulse withdrawals (the mattress and the sugar bowl are not candidate holdings). 

Emergencies give no notice, they last for a lifetime

Since emergencies do not give a thirty days’ notice, the money in your safety net must be easily available without borrowing (the Sacco is ruled out) or making arrangements. If you think about it you realise that, a portion of the money has to be available immediately (now) and the other portion within 72 hours so as to address emergencies.

Since you will have this fund for many years (uncertainties last a lifetime) then it is important to consider the effect of inflation and bank charges which will wear out the fund. The fund will only exist if we are good stewards who help it to grow by always refunding what we take out.
With considerations of safety, growth and availability it is now clear that your fund will have to reside in three distinct pots: a savings account, a fixed deposit account and a money market unit trust.

Why manage uncertainties?

You must have heard people say, they would cross a bridge once they get there… when it gets to emergencies or uncertainties the bridge has to be crossed there and then. 

Your emergency fund (Safety net) is not for making you wealthy, but it is a wedge to ensure you do not backslide financially, it is a family love bank where you will put in deposits of care and that is why you will let those close to you know the existence of the fund and you will share the PIN of the ATM card because the emergency the family might face is your state of being unable to talk (think of being unconscious and requiring urgent medical attention). 

There is no doubt the existence of this fund will give you a sense of calm, allow you to relax, think clearly and sleep well at night so that when the day breaks you will be in a position to do your best having managed your uncertainties.

Setting such a fund will require a mind shift which allows you to conceive a self- insurance mechanism which will eliminate budget interruptions and give you a chance to specifically define your emergencies.
You can now focus on setting up the fund by selling your crap (things you do not use) and putting the money in the fund. Do the same with any windfall that comes your way. 

If you need more help, ask us about the Wealth Creation Masterclass where such concepts are taught.
Wahome Ngari is the Principal Consultant/ CEO, Citadel Consulting Ltd. He runs the personal finance management program known as Wealth Creation Masterclass . Get in touch with him on 0724 888219 or drop him an email at
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