Amaka is your average 23-year-old social media manager whose mantra is “You only live once”. She had a well-paying job and she really was living that soft life. But one fateful day, life took an unexpected turn. She was laid off at work and during her first month of being unemployed, she got into a minor accident that left her car in need of urgent repair.
You are probably thinking – “Poor Amaka, she should be able to survive on her savings till she gets another job”. Let’s just say Amaka took that YOLO lifestyle a little too seriously. It was during this period in her life that she made the decision to start saving for emergencies immediately life stops showing her shege.
In this blog post, we’ll walk you through the best ways you can avoid certain adulthood crises with the help of an emergency fund in 2023.
Why Every Adult Needs an Emergency Fund
- Unpredictable Emergencies: As you can tell from Amaka’s story, life is unpredictable. Medical emergencies, car breakdowns, unexpected job loss, or urgent home repairs can leave you in a financial mess. An emergency fund acts as a financial lifeline during times like these.
- Reduced Stress: Financial stress can have a negative effect on your mental and physical health. Having an emergency fund replaces that stress with peace of mind, knowing you’ve stashed enough cash away to handle unexpected expenses without going broke.
- Avoiding Debt: Without an emergency fund, people usually take out high-interest loans to cover unexpected expenses. This is probably the most unhealthy financial decision. An emergency fund will help you avoid falling into the debt trap.
- Financial Independence: Building an emergency fund is a step towards financial independence. It allows you to handle emergencies without relying on family or friends for financial assistance.
How to Start Building Your Emergency Fund
Now that you understand the importance of an emergency fund, here are a few actionable steps to help you get started:
- Set Clear Goals: Determine how much you want to save in your emergency fund. A common emergency fund rule is to aim for at least three to six months’ worth of living expenses.
- Create a Budget: Track your monthly expenses to identify unnecessary expenses that you can avoid in order to add more cash to your emergency fund.
- Automate Savings: Set up an automatic transfer from your main account to your emergency fund. Treating your savings like a bill that has to be sorted can help you improve consistency.
- Open a Separate Account: It’s smart to open a separate savings account for your emergency fund. It makes it easier to track your progress and also prevents you from dipping into it for non-emergency expenses.
- Stay Consistent: Building an emergency fund takes time and discipline. Stay committed to your savings goals even on days when it’s hard.
- Use Unexpected Income wisely: A certain percentage of any unexpected income, like bonuses, extra cash from side gigs, or gifts, should go into your emergency funds too.
- Prioritize High-Interest Savings: Choose a savings account or investment option that offers higher interest rates to help your emergency fund grow faster.
Also read: 10 Money Mistakes to Avoid in Your Twenties
In conclusion, Amaka’s story is a reminder of the importance of an emergency fund. Life is too unpredictable not to have a financial safety net to rely on. Don’t wait for a financial crisis to start building your emergency fund. Now is the perfect time to start saving.