3 Things I Learned From Building My Emergency Fund
I come from a family that doesn’t believe in owning a First Aid Kit.
My parents believe that when you have a First Aid Kit that means you’re anticipating that you’ll experience cuts and bruises.
After all you don’t keep a First Aid Kit for decoration, do you?
Although I didn’t quite buy my parent’s thinking, I found myself acting in alignment with their belief around First Aid Kits.
For me, my First Aid Kit was my emergency fund.
One of the most popular advice people in the finance space give is that you should have an emergency fund to fall back on. And to be honest, I always ignored that advice, until one day I made a decision to actually build one.
In this newsletter you’ll learn:
What is an emergency fund and why you should have one
A simple strategies to help you build your emergency fund
The right mindset to help support you as you build your emergency fund
But in return my challenge to you is to take a screenshot of the part of this newsletter that you found insightful and tag me @mary_imasuen (on Twitter or Instagram) with the hashtag #RelishAbundance.
Deal?
For those reading my newsletter for the first time, I’m Mary Victoria and I write about personal finance and fintech.
Why Have an Emergency Fund?
I’m sure you already have an idea of what an emergency fund is. But just to make sure we’re on the same page, an emergency fund is money you set aside solely for emergencies. This can be for a wide range of emergencies from the little ones like your car breaking down to bigger emergencies like taking care of hospital bills.
But why have one?
Obviously, it’s to keep you prepared so that you don’t have to liquidate your savings or investments.
But I want to take it a little deeper.
If I’m allowed to take a wild guess, up until today you probably have been relying on your secret stash of savings to get you through rough patches.
I was that way too.
Life shouldn’t be about just keeping aside money for rainy days or emergencies. You should save for fun experiences, self-development or leisure as well.
Why only limit yourself to emergencies when there are other things to also live for? Certainly not every day is going to be a day of emergencies. It’s not realistic.
I think keeping a fund separate from your savings but dedicated to emergencies alone, will help put you in a better headspace when it comes to money and how money can support you.
It creates the spaciousness you need to begin to see money as something that is out there to support your dreams and also hold you up when things don’t go right. And this can happen more effectively when you compartmentalize money.
So keep your stash of savings separate from your emergency fund.
Lessons I Learned From Building My Emergency Fund
I’ve only started working on my emergency fund for the past 2-3 months. At first it felt strange. I must admit that there were times where I struggled with it.
But after sticking through it for the past couple of months, I realize that a lot of what held me back were my self-imposed limitations.
Here are 3 lessons I learned so far:
The kind of mindset you have towards a fund could encourage or discourage you. So, approach emergency funds with the right mindset.
I’ve been learning about personal finance for about 5 years and having an emergency fund was among the first steps to working on your finances.
But I never bothered to build an emergency fund. I didn’t see it as important.
As I dug deeper to understand why, I found out that it was because I dreaded emergencies. So I saw having an emergency fund as granting permission for the floodgates of emergencies to open.
If this is you, then I’d like to challenge you to look at your emergency fund from a different perspective.
Instead of seeing it like an open invitation to disaster, see it more like a support system. This will help shift the energy from “Oh my gosh! Now anything can go wrong!” to “I am supported, secure and safe”.
This simple mindset shift made it a lot easier for me to build my emergency fund. I no longer have any resistance towards it.
And if you’ve struggled with having a positive relationship with your money then this will help you too.
Most times people who see money as never being there when they need it, truly desire to experience security. When you start seeing your emergency fund as being there to support you, this line of thinking will ultimately spread to other aspects of money in your life.
Starting an emergency fund doesn’t have to be difficult. The easier the process to get started, the longer you’re able to stick with it.
I have a bad habit of overcomplicating the process of everything, including money. The downside to overcomplicating the process is that you run the risk of never starting.
With this in mind, I decided to allocate 5% of whatever money I receive and add it to my emergency fund. That’s it.
I’m so conscious of this “rule” that setting aside 5% is the next thing I do as soon as I receive payment. And on the days I forget (which is rare) I make sure I have it done.
The app I chose to keep my emergency fund was PiggyVest, specifically the Flex Naira feature. I created a label called “Emergency Fund” and drop my 5% in there. Interest on the Flex Naira wallet is 8% per annum, so I’m making additional income on my emergency fund.
You can actually survive on less.
It happens to the best of us. When you take a portion out of your income, you tend to wonder if you can survive on less.
You might even be tempted to question if you really need an emergency fund.
But the truth is that, you’ll be just fine.
If you decide to follow my approach by keeping aside 5% for your emergency fund, you’ll notice that the amount is determined by how much you receive. It’s unlike a fix figure that you have to pay no matter how much you earn.
If you earned N100,000 this month then 5% of that is N5,000. But the day you earn N50,000, you’ll only have to keep aside N2,500. And if you don’t receive anything at all, 5% of zero is zero.
When you take a second look, you’ll see that you’re only setting aside a small fraction of the money you earn — a fraction you can do without and one that won’t hurt your pocket.
So it is doable.
Now It’s Your Turn
I’m glad you didn’t skipped this piece on emergency funds. The old me would have. So I’m proud of you for sticking through it.
I hope this newsletter will encourage you to consider building your own emergency fund.
And if you had an emergency fund but gave up on it, I hope I was able to provide you a strategy that will encourage you to get back on track.
Keep shining,
Mary Victoria 💋