How to Build an Emergency Fund

An easy 8-step process to build an emergency fund

First, you save money. Then the money saves you. — D. Muthukrishnan.

I remember last year I had figured out the exact amount of money that I need to pay all my basic living expenses; rent, food, water & electricity bills, internet, transport and one hike in the woods per month. I knew the exact figure, no guesswork. I was so happy. This is the first step towards saving an emergency fund. You figure out how much money you need to cover all your living expenses per month, then save, at a bare minimum, three times that amount. Ideally, a good emergency cushion should be six months worth of living expenses. You can’t come up with this figure without a budget.

“Feed your horse first. When you’re in a war, you’ll never know when the next hit will happen, feed your horse first before you feed yourself.”

He used this quote while making his financial decisions for his business and personal expenditure. Feed your emergency fund first, before you buy anything that is not a basic necessity.

1. Decide how many months worth of an emergency fund you need

I work with six months but other personal finance books quote one month to one year worth of living expenses. Decide for yourself what works for you, but I know for sure that just one month is too risky.

2. Include emergency funds as part of your budget

An emergency fund should be treated as a basic need. Include it in your budget the same way you have rent, food, and other essential bills. What gets planned gets done. If it means printing your budget and hanging it on a wall, do it.

3. Have a separate bank account for this fund

The idea is to make sure you don’t have quick access to this money like you do with your checking account. This ready money is tempting.

4. Cut down unnecessary expenses

In fact, kill all unnecessary wants until you’ve saved up six months of living expenses. When hit with an emergency, that extra pair of designer shoes won’t save you! You’ll be so busy wallowing in regret you’ll wish you never accumulated so much crap at the expense of a calm mind in the face of disaster.

5. Make small, consistent deposits

This is easier than imagining that you’ll get a lump sum amount in future that you’ll save towards the fund, or doing nothing at all! As James Clear says, both winners and losers have goals. What separates the two is their systems (consistent habits) over time.

6. Any extra money made or received should go directly towards your saviour’s account!

When you have an emergency fund worth two years of expenses, you’ll be less afraid of your boss. You’ll have sufficient time to look for another suitable job. This is the first milestone in the journey of financial independence. — D. Muthukrishnan.

7. Get an extra source of income

If you currently don’t have an emergency fund, you’re treading on the edge. If an emergency occurs, you’ll fall back into debt, or get into bigger debt. I don’t know about you but the thought of being in debt, especially credit card or those blood-sucking mobile money apps was enough motivation to get a side hustle. I used to write for a magazine and was shocked when they offered to pay me $100 dollars for each article.

The best advice I could give anyone young person is,MAKE MONEY.As fast as you can, develop the work ethic and skills to be financially independent. Debt is a killer, and the modern economy is designed to trap you and get you operating on credit and owing money. Don’t fall for it. — Alexander J.A Cortes

8. Write down a ‘Don’t you fucking dare’ list (Chelsea from TFD taught me this)

What are you addicted to buying that’s not a necessity?

Why you need an emergency fund

1. When shit hits the fan, as it often will, you’ll have a fallback plan

You will not need to call random people to lend you money. And if you do call your dear friends, you know that you can pay them back within a day or two. This will build you a good reputation; we all want friends who payback when they say they will. Be one of those.

2. Clears your mind to dream bigger and to see possibilities

You can’t be stuck with basic dreams year in year out. Saving for this fund is hard. When you do it, you communicate to your subconscious mind that you can be more, you can dream more, you can conquer bigger obstacles. Since I already proved to myself that I can save an emergency fund in Nairobi, I know I can use the same hacks and save one for Dubai. I have no doubt about it.

3. It gives you options

Having money gives you options to choose where to live, the quality of food you can afford, which healthcare options you have access to etc. Being broke means that you’re stuck with whatever is handed to you. I have been poor for most of my childhood, I hate poverty.

4. It gives you the ability to be creative

Stress and anxiety when you don’t have options mean that you don’t have the luxury to be creative in your career or life in general.

5. Eliminates stress caused by small issues

Like having to wait for one hour for the bus fare to go down by 10 shillings!

The biggest cost of the attempt to thrive is the worry. You even worry about the worrying. — Naval

6. Stress levels decline which boosts your self-confidence

“it’s hard for an empty bag to stand upright”

As Benjamin Franklin once said, There are three faithful friends — an old wife, an old dog, and ready money. I can’t have the first two so I’m out here securing the bag with some ready money.



Your voice of reason before you blow all your money this weekend!

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