Emergency Fund
Sometimes, you never know what's going to happen next
4 minutes
Having access to a 'rainy day fund' can mean that you can deal with any financial issue independently
An emergency fund is used to meet unexpected expenses by keeping aside a portion of your savings. Such cases can include unanticipated medical issues or essential travel requirements.
How much do I need?
The answer to this question depends entirely on yourself and your needs.
For some, this could be just MVR 1,000; for others, it could be a month’s salary or more.
Take some time to ask yourself about potential disaster scenarios.
The questions below may help:
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Do I have private health insurance from my place of work? If not, how much would I have to spend at a clinic for a checkup or procedure?
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How much are my monthly expenses?
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If I were to get fired from work today, do I have enough to support myself and my family before finding another opportunity? How long might it take? Note: some employers may have a minimum notice period from date of resignation ranging from a couple of weeks to up to three months.
Pro Tip!
If you’re unsure or just starting off, saving just MVR 500 per month will leave you with MVR 6,000 by the end of the year. Wouldn’t that be nice to have for a difficult day?
Tips to develop an Emergency Fund
There is no hard and fast rule of how much you need to keep away. Start small and aim big.
These ideas below can help you along the way:
1. Keep a separate savings account
Not only keeping the emergency funds in a separate account help you identify easily how much you have, it would also encourage you to keep your hands off it until you really need it.
For those with questionable self-management skills, you may consider having an account at another Bank. Maybe take a step further and avoid getting a Debit Card so that you would have to go through additional steps to withdraw money.
2. Automatic transfer to savings
The most ideal time to place away funds for an emergency is when you immediately receive money. If you wait until the end of the month, quite often you’d find that you have used up a lot and there’s nothing to save.
Some banks may allow you to set up a Standing Order, which is a fancy way of saying they’ll automatically transfer a set amount for a defined period of time and frequency. This means, for example, you can instruct the Bank or apply via Internet Banking, to transfer MVR 100/- each month on the 1st to an account of your choosing.
Do you recall the joy of finding long lost money in your jeans that was just washed? Now imagine a beautiful account waiting in the shadows just when you need it the most.
3. Stay patient and build over time
Saving takes time, patience and the right circumstances.
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Start simply - transfer an amount that you're happy with on a good month. Maybe you got your annual bonus. Or STELCO decided to give a discount (let's not jinx it).
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Once you reach your goal, you will (hopefully) be in a position to face any financial surprise that life may throw at you.
When to use the Emergency Funds
The first rule of FightClub Emergency Fund is that thou shall only use it for an emergency. Duh.
This is NOT the funds that you should use if you run out of money by the end of the month.
If you find that you have to dip into these funds, then maybe it is better to begin by understanding your inflows and outflows.
Pro Tip!
Once you use money from your Emergency Fund, make sure you build it back to its original balance (or more)