EMERGENCY FUND - the importance of a Financial Safety Net

What is an “ EMERGENCY FUND ”? 

An emergency fund is a stockpile of cash that you have saved for sudden, unexpected or unforeseen financial expense that comes up in your life. The defining feature of a financial emergency is that it is difficult to predict. You cannot be certain when or if  such an emergency will arise and how much it will cost. These emergencies include a sudden illness, an accident, a lay off or a pay cut or a death in the family. A financial emergency is different from expenses that occur on a day to day basis. It is also different from expenses which occur less frequently such as maintenance costs/replacement costs of vehicles and household equipment. Having an emergency fund helps you to cover the unexpected expense without having to go in to debt. 

How much should you save? 

The answer to this question will vary depending on your personal financial situation, the type of job you have and whether you have dependents or not. Typically, financial experts advise you to save at least 3 to 6 months of expenses in your emergency fund. 

However, if you have a family or elderly parents whom you support, (or sometimes even pets)  it is advisable to save more. If you work in a field where it is difficult to get a job or have fewer vacancies or requires specialized knowledge/ certifications and you know that you maybe unemployed for a longer period time, it is advisable to save at least 8 to 12 months of expenses in your emergency fund. It is important that you have the emergency fund in an account which has high liquidity. It is essential to have easy access to your emergency fund in case you need it. 

Importance of having an Emergency Fund 

The current unpredictable global economic situation has demonstrated to us, the value of having a stockpile of cash to cover emergency situations. Many of us  face an uncertainty about our jobs. The best thing about having an emergency fund is that it gives you peace of mind. Knowing that you have a significant amount of money in savings for such  emergencies, gives you a great deal of peace of mind. It takes away the stress related to coming up with money to pay for daily expenses and helps you to find the best solution for the problem at hand. Having an emergency fund in place will make any financial emergency in to an inconvenience instead of turning it in to a complete financial disaster. If you do not have an emergency fund you will be forced to borrow money to cover your regular bills through credit cards or pay day loans. The high interest rates attached to these debts will make it even harder for you to get back on your feet financially. An emergency fund will also help you maintain your standard of living, give financial stability to your family and stay current on your bills. 

How to save money for an Emergency Fund 

• Live a minimalist lifestyle for a few months until you save up enough money for an emergency fund. 
• Set up an automatic transfer from your salary to a separate emergency account. 
• Sell unused items that you have around the house online. 
• Take up a side job for a few months until you save up your  an emergency fund. 
• Savings challenges – eg:-Saving coins, 52 week savings challenge 
• Take additional hours at your job and directly put that extra money towards building your emergency fund. 
• Save tax refunds or bonuses from your job 

It is important to understand that it will take some sacrifice and discipline to save at least 6 months of expenses. However, these sacrifices will be temporary, and the benefits of having an emergency fund will greatly out weight the minor inconveniences that you will have to face in the short-term.

11 SIMPLE STEPS ON MONEY MANAGEMENT

BASIC STEPS TO CREATE A BUDGET

Disclaimer - It is important to note that the above tips are my personal views and opinions on money management. These tips should not be considered as  professional financial or legal advice. This information is  general in nature, may not be suitable to your individual, financial or legal situation. Always consult a competent and qualified Financial Professionals and a Legal Professional before you chose any investment, and, do all  necessary research and understand the risks involved  before you purchase any financial product.

HOW TO SPEND THE LOCK DOWN PERIOD IN A MORE PRODUCTIVE WAY

Many countries around the world have ordered lock downs of cities due to the ongoing global pandemic. Many states have issued stay at home orders to their citizens and some of us have been given the opportunity to work from home. It is a difficult time for us as there is a lot of uncertainty about what the future has in store for us. 

However, this lock down/ curfew period has also given us a gift. That gift is “TIME”. It is easy to spend your time these days scrolling through social media mindlessly or wasting a lot of time and mental energy by constantly checking updates of the number of patients worldwide. Therefore, it is important that we make a conscious decision to use this valuable time in a more productive manner. 

Here are my thoughts on how to spend the lock down/curfew period in a more productively and efficiently. 

Give priority to maintaining your physical and mental health. 

Maintaining Your Physical Health- When you are at home it is easier to fall in the habit of stress eating or eating when you are bored or forgetting to exercise because you can’t go to the Gym. Take steps to incorporate exercise into your daily routine. Try to be active and move around the house instead of sitting down in front of the computer or television. Eat a well-balanced meal and stick to your regular meal times. Drink plenty of water. If you have to take any medications for any illness take them at the appropriate times as prescribed by your doctor. Follow the guidelines set out by the medical professionals if you are going out to a public place. 

Maintaining Your Mental Health- Stick to a reliable source to gain information about this virus and avoid information overload. Being anxious is not going to help anyone. Take time to relax. Read a book and meditate for at least 10 minutes a day. Focus your mental energy on things you can control and learn to let go of things you cannot. Appreciate and be grateful for all the things you have and for your family’s health. Stop worrying about what you could have done differently in the past and focus on making the most of the present. 

Practices to help you improve your life

Create a household budget as a family 

Today, many of us are facing a hard time when it comes to our Jobs and our businesses. There is a lot of insecurity about our finances. It is vital that you take decisions about managing your finances as a family. Taking time to create a household budget will help you prioritize your goals and help you to talk through any financial worries. A household budget will help you navigate these times without causing disharmony among family members. It can also help you to cut down any unnecessary costs. This will also provide you a perfect opportunity to teach your children about money management. 

BASIC STEPS TO CREATE A BUDGET

Teach your children essential life skills 

Most schools have been closed and your children are also stuck at home. Although it may be tempting to let them binge watch television all day while you work from home, it is important to maintain a routine for them. Help them to catch up on a subject that they are having trouble with at school. Instead of allowing your children to surf the internet all day teach them how to cook, how to manage their finances, and how to stay organized. These skills will help them to become well-adjusted adults one day. 

Life skills every teenager and young adult needs to learn

Spend quality time with your family 

The best thing about these lock down period is that we have a lot of time to spend it with your loved ones. Make this time count. Have a family game night. Talk to each other and share your worries and frustrations.  Talk to your children and let them know that you are always willing to listen to them and you are there for them. Get in touch with your relations by phone or through social media. Take out the family albums and share stories about past memories. 

I hope that each and every one of us will be able to make the best of our time at home and become closer  as a family

BASIC STEPS TO CREATE A BUDGET

Creating a household budget generally takes up a lot of effort. However having a budget helps us to set our financial goals, control our spending, pay off our debts faster and increase our net worth. If you are able to set up your household budget you will be able to control your money instead of your money controlling you. A budget gives you a detailed plan on how you spend your money and how much you save. A budget helps you be disciplined about your money.  Start creating a budget with your very first monthly salary and continue with this practice, and very soon you will be able to achieve financial stability. 

A budget will give you peace of mind because it helps you come up with a clear plan to pay your monthly expenses and debts. You will not be constantly worried about missing the due date of a bill or have to check your bank balance when you are at the checkout line at the supermarket wondering if you have enough money to cover your purchases. 

Unfortunately, many Young Professionals today are unable to achieve financial stability even if they earn very high salaries and hold high level jobs due to the lack of planning. Setting up a budget, if done accurately and consistently each month, will help you to become more financially stable. 

How to set up a budget 

Step 1- Decide what type of budgeting system will be most suitable for your lifestyle. 

There are many different budgeting systems out there. Some are computer based and some require only a pen and some paper. Choose which system is most suitable for you. The budgeting system has to align with your future financial goals. It has to be a system which can adapt to your lifestyle and be easy to use. It has to be convenient and not take up a lot of time. It also has to be an uncomplicated system that you can maintain for a long period of time without undue effort. A household budget is extremely personal and unique. A system that works for your colleague or your sister may not necessarily be suitable for you as each individual and each family has different financial goals and financial priorities. Therefore, choose a budgeting system that is simple, that is easy to maintain and that is in line with your financial goals and priorities. 

Step 2- Calculate your monthly income 

Ideally you must have more than one stream of income. Your salary from your job is your main source of income. It is essential that you know your monthly take home salary. Your monthly income may also include any bank interests, dividend payments, rental income, annuities which comes to you on a monthly basis. 

Step 3- Write down a detailed list of your expenses 

Tracking your expenses for 2 to 3 months will help you come up with a more accurate list of expenses. It is important to record what you have paid for whether it is by cash, credit card or online direct debit from your current account. It is also important to calculate the monthly amount of expenses that occur annually such as council taxes, income tax and vehicle revenue licenses. Being as accurate and as comprehensive as possible in recording your expenses is key to setting up your budget. 

Step 4- Create your monthly budget 

After calculating your monthly income and your monthly expenses write down your monthly budget. Write down the due dates of the bills to prevent getting a late fee. Once you have set up an estimated budget make sure to track all your income and expenses monthly and adjust your budget accordingly. Make sure that you prioritize your bills such as mortgage/rent, utilities, medicine and food before your discretionary spending. 

Step 5- Cut out unnecessary expenses and automate savings 

Living below your means is the easiest way to achieve financial  stability. Once you have created a budget it is easy for you to see where you are spending unnecessarily. What you consider necessary is completely unique to you. However these days you will notice that you do not need a lot to live a happy and healthy life. Think carefully and remove all unnecessary expenses from your life. Once the budget is set up it is easy for you to determine how much of your salary that can be saved. Set up an automatic deposit the said amount (even if it is as low as 2 to 5 %) to a separate account which you don’t have easy access to and let that money accumulate over time.

11 SIMPLE STEPS ON MONEY MANAGEMENT

Disclaimer - It is important to note that the above tips are my personal views and opinions on money management. These tips should not be considered as  professional financial or legal advice. This information is  general in nature, may not be suitable to your individual, financial or legal situation. Always consult a competent and qualified Financial Professionals and a Legal Professional before you chose any investment, and, do all  necessary research and understand the risks involved  before you purchase any financial product.