7 Tips on How to Save Ksh. 1 million Personal Emergency Fund
How well are you prepared for Personal emergencies? This a million-dollar question which every one of us should answer, on how to save a personal emergency fund.
The answer to this is through savings. This is important because most people even in the developed countries have savings less than Ksh. 100,000. From the outside, I have to clarify that as you read this blog article, bear in mind that you do not have to raise Ksh. 1 million. Just set a target which is manageable by you. This will depend on many factors such as your level of income. Therefore, the Ksh. 1 million target in the title of this article is not a constant. You may find this SMEtoolkit handy in determining how much you should raise as personal emergency Fund.
In the United States of America, it is only 14 percent of the residents who have more that Ksh. 1 million (USD$10,000) in their savings accounts. It’s very important to have a huge amount of cash saved to be used during emergencies.
This is the amount that you can fall on when you get into unplanned events such as accidents and lose a job. Ideally, you will be well prepared to deal with such emergencies if you have a million shillings in the account.
This is a step-to-step guide on how to save Ksh. 1 million as personal emergency fund.
- Assess your sources of income
First, establish how much money you spend every month. What do you spend your money on?
You may be surprised how much money you spend on airtime and other simple expenditures.
It is easy to think that the simple things you buy such as a cup of tea or impulse buying do not have any impact in your overall spending. These have an impact of adding up to astronomical figures. Habits such as impulse buying can be a barrier to your personal emergency fund target.
- Set Reasonable Goals
Savers who have families or kids see saving Ksh. 1 million of personal emergency fund as an uphill task. It has been equated by some of my friends to Climbing Mt. Kilimanjaro. There is one consolation. That is even climbing Mt. Kilimanjaro is never done in a single day. In raising Ksh. 1 million emergency Fund, you will take years but the effort is worth it.
You may need more than 8 years to raise Ksh. 1 million of personal emergency fund if you saving Ksh. 10,000 every month.
Make sure that all your goals are SMART. They should be Specific, Measurable, Achievable, Realistic and Time-bound. Make your goals based on your capacity.
Budget
Financial experts such as Kevin Gallegos of Freedom Financial Network (personal finance firm) has recommended that people should save at least 10 percent of their income every month towards creating an personal emergency fund.
The secret to creating a personal emergence fund is that you should set a goal and commit towards attaining it.
- Pay everything with Cash
This may be difficult but it is necessary in achieving a better budget. There is need for entrepreneurs to provide services in helping people save and plan well.
Experts have even suggested that we should carry a notebook and note everything that we purchase. This is an action which can help you overcome impulse buying. Alternatively, use cash as much as you can.
- Make Savings a Bill to be paid first
Saving is hard. Most people will agree with me on this matter. This is not the way it is supposed to be. We can simplify it through understanding it. Experts have suggested that you can make an automatic payment. You can direct your employer to send a part of your salary into your savings account.
What I mean here is that the Personal Emergency Fund should be made the same way we pay National Health Insurance Fund (NHIF), Higher Education Loans Board (HELB) loans and National Social Security Fund (NSSF).
This is a very useful strategy when it comes to long-term savings. Hold your horses, after a short while, you will get used to the situation.
- Open a high-yield Savings Account
At this point, we should agree that the phrase ‘personal emergency fund’ can have a different meaning depending on who you talk to. For instance, if you go out with your girls or boys that is not the emergency we are talking about.
To solve that, you should set up a savings account which is not easily accessible. You can for example open a saving account which requires that you travel for instance to the next town to withdraw money.
The savings account should be separate from the ordinary checking account. That way you will be disciplined and avoid spending money meant for emergencies.
- Put financial windfalls into savings
There are more unexpected expenditures such as car breakdowns, lost properties than financial windfalls. Despite that, there are times when a person gets unexpected incomes. All these unplanned for revenues should be put into the savings accounts as personal emergency fund.
If it is not possible to set it aside the entire amount, then make sure at least 30 percent of that financial windfall ends into the personal emergency fund.
- Pay Yourself First
It is important to reward yourself every time you achieve the targets sets down. Ideally, if you have achieved your saving goals every six months, reward yourself. This goal should be incorporated into your budget. For instance, you can enjoy a weekend out of town. This will have an effect of sustaining your momentum.
