How much should you have in an emergency fund account?

What is an emergency fund account?

An emergency fund is a bank account you open and operate with a financial institution where you set aside money that will cover up for unplanned expenses such as medical bills, auto repair, building collapse and other expenses that arise when you don’t expect them.

Emergency fund prevents you from loan sharks or from scampering for loans with high interest rate during emergencies.

According to Nerdwallet columnist, Liz Weston, emergency fund “is one of the first steps in climbing out of debt.” It prevents you from going deeper into debt.

In a world filled with unexpected occurrences such as accidents, illnesses and family emergencies that are very hard to predict, ignore or postpone, having an emergency fund is the way to put financial pressure under manageable control.

An emergency fund acts as a buffer when something unexpected happens, it protects your other long-term investments.

Your emergency fund also prevents you from selling your stocks prematurely when you are in urgent need of funds to meet obligations.

How much should I have in my emergency fund account as a bachelor or spinster?

According to Mr Emmanuel Ayodele, a financial and risk management advisor in Nigeria, “one should have at least three months of living expenses” in their emergency fund.

For instance, if you are single and you need N300,000 to cover your basic needs like utility bill, foodstuffs, subscription and gas, then you need N900,000 in your emergency fund.

N900,000 is enough to cover your emergency fund if nobody depends on you for basic needs. The case is different if you are married and have dependants.

How much should a married person have in their emergency fund account?

You should have six months’ worth of your living expenses in your emergency fund. If N300,000 covers your basic needs, then you will need N1,800,000 in your emergency fund if you have people who depend on you.

You will need to have more in your emergency fund if you have immediate family members such as your spouse, children who depend on you.

Also, if you work in an environment with a high injury rate, it is better to double the amount you have in your emergency fund.

Experts have also advised that you should save more as you get better in savings. Several mobile money and save planning apps let you keep cash for emergencies.

What kind of account is best for emergency fund?

Put your emergency fund in a safe and easily accessible account. You should put it in an account that you won’t be penalised when you need to access it.

It is not the best to put it in stocks because restrictions usually applies on withdrawal on stocks, they have certain number of days for maturity.

Emergency can strike any time, you should plan ahead before it strikes, you can do this by putting something away and build your fund over time.

Can I use savings account as emergency fund account?

Yes, you can put your fund in high-yielding savings account, apart from your money yielding interest, savings account also allows you access your money when you need cash to meet emergencies without incurring any for of penalties.

10 benefits of having an emergency fund account

1) To protect yourself and family from financial vulnerability that usually happens during job loss, loss of sales and when things do not go as planned.

2) It allows you to diligently attend to emergency health issues and other emergencies.

3) It is used as buffer against tax penalties from having to make immature withdrawal from your retirement accounts.

4) It prevents you against selling your property or other investments to meet basic needs.

5) It gives you access to other value-added investment opportunities because your emergency fund is like a surplus that serves as backbone of your other needs.

6) It gives you access to purchase distress valuable goods because your emergency cash makes you to be more liquid than someone who doesn’t have one.

7) It allows you to meet basic household needs such as repairs.

8) It eliminates regrets and marital pressure that usually comes up between couple when they cannot meet basic financially needs.

9) Having emergency fund have a long lasting benefit on your health and wellbeing. Emergencies can spark a high blood pressure.

10) It enables you to pursue attractive investment and increases your liquidity.

Conclusion

Managing an emergency fund also requires financial discipline, it isn’t something you should access over a minor pulse purchases.

Finally, emergency fund prevents you from dipping your hands into business funds and prevents you from selling your property to meet exigencies.