Once beaten twice shy they say, unfortunately, I have seen people who are bound by the fear of job security beaten over and over again. One thought that runs through my mind is that did they not learn from their mistakes? For some people, it is the same process, they lose their jobs and they are back to square one.
I know of a friend of mine who within a few months of losing his job as a banker was already looking like someone who had never seen nor handle a measure of money. He bounced back to his big boy lifestyle just a few months later when he got a job with another bank. Truth is, if he did not learn from his experience and take measures to ensure that the somewhat shameful episode does not repeat itself, he will be back to square one should he lose his job again in these recent times where we have a lot sms banking innovations by commercial banks.
You can choose to look at it as saving for the rainy day but emergency fund is basically money you put aside to cover for your expenses for a period of time in between when you lose a job and when you get another at least for the scared "business-repellent" sidewalker. I like the way Joanna explains it “We never fully appreciate the phrase “save for a rainy day” until we’ve actually been caught in a downpour. At times in our lives, Murphy’s Law seems to be annoyingly present in our day-to-day existence. Sometimes “when it rains it pours” is true in the worst way possible. The thing is, hard times don’t last forever and eventually the sun shines through and dries you off. But wouldn’t it be nice to have an umbrella during such times? It wouldn’t stop the rain, but it sure would help protect you from the worst of it”.
How to determine how many months’ savings you need.
It is advisable that you have an emergency fund of at least 3 months saved away in a good interest yielding account. The dynamics differ for each of us and we need to understand that. If you are still below 30 years old and you have high level of experience spanning over five years and you are very versatile, possibilities are you won’t stay out of a day-job for too long and as such may not need more than 3 months savings in your EFA.
As you grow older, the dynamics changes and the length of time you need to cater for increases.
How much should you save in your EFA?
When deciding how much money you need to have in your emergency funds account per time to take care of the bills in your transition period, it is good to ask yourself the simple question of “how much will I need to survive on a monthly basis?” If you have a functional budget you work with already, this should not be a burdensome task at all.
Before you conclude on how much you will need to save, you might want to ask yourself the following questions:
Do I want to maintain my current lifestyle or want to live a minimalist life during this transition period?
What and what am I willing to cut out of my luxuries?
What can I afford to put aside every month now and how long will it take me to save the required amount?
Do you want to assume in your calculations that both of you (if you are married) lost your jobs?
Do you want to assume that people will help you with a little here and there or that no help will come your way?
Based on the answers to the questions above, you can now decide how much you need to save up for expenses and for how long do you need to save.
So if you have decided what you need per month is 100k and you will like to make arrangements for 6 months then you must have a minimum of 600k in
your EFA. It will also be good to make arrangement for inflation, it means you are looking at adding a few extra thousands to the total figure.
Having an EFA helps you to adjust well to the shock of losing a job and helps you to compose yourself faster and make right decisions in the days and months ahead. It takes the pressure of having to pay bills away.
Read more on emergency funds account and decide today to start one. Always remember, in your journey to financial freedom, it is about deciding to embark on the journey and finding the route that works best for you. So we enjoin you to join the fasttrack if you have more guts than just falling back on EFAs
your EFA. It will also be good to make arrangement for inflation, it means you are looking at adding a few extra thousands to the total figure.
Having an EFA helps you to adjust well to the shock of losing a job and helps you to compose yourself faster and make right decisions in the days and months ahead. It takes the pressure of having to pay bills away.
Read more on emergency funds account and decide today to start one. Always remember, in your journey to financial freedom, it is about deciding to embark on the journey and finding the route that works best for you. So we enjoin you to join the fasttrack if you have more guts than just falling back on EFAs
Cheers
James Bash
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