A friend of mine reached out to me that she was in dire need of some cash. I didn’t know how critical the situation was and hence didn’t take her request seriously. She kept pressuring me and she finally opened up to me. She and her family had returned from a two weeks summer holiday in June and upon her return, she got the shock of her life; she had been placed on a 2 weeks suspension due to a consumer loan she approved which eventually went bad.
At the end of the suspension period and upon her resumption, she received another blow; she had been laid off work. Now, this is a new school term, and she needed to pay school fees for her 2 children whom are in very expensive schools. I was further surprised to learn that she is the main financial contributor to her family and that even the vacation she went for, she took a loan from one of these independent money lenders, (How sad, that’s a story and another article for another day).
I honestly felt very sorry for her, sadly silver and gold I have none to loan to her and such as I have I gave to her. I took her through personal finance 101 and we worked on her family budget using her husband’s earnings as the sole source of family income. See my previous post on a practical family budget.
Financial emergencies can happen to anyone, no one prays for it to happen, but the truth is that these things do happen and such occurrence can place one in a very desperate situation especially if you can’t raise the said funds. It is so vital to have emergency funds that one can fall back on in times like this.
So what exactly is emergency fund and how much do you need to save for it. Emergency funds are about 3 months of your net income or 6 months equivalent of your monthly expense stored in a savings account. You should be able to have quick access to your emergency funds; therefore you should not store it as an instrument. (Stocks/bond/Treasury bill).
An emergency fund should not be touched unless it is truly an emergency such as loss of Job, Hospital expenses that are not covered under your insurance, major car breakdown, house flood/fire, etc. Note that emergency funds are different from retirement funds, and children’s education funds.
So dearies, if you do not have an emergency fund, make that part of your priority in these remaining few months of the year. You will feel much better and have more financial confidence knowing that you are covered in case of any emergency.
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