Why you need an emergency fund
AS Jamaican women going out on dates, we will always have our stash of ‘get vex money’ tucked away, even when we fully expect that the man will pay for everything. This ‘vex money’ is not used most times, but what if you have a disagreement while you are out and need to take a taxi back home? What if he decides to pay for only his meal? This ‘vex money’ is an emergency fund for that date.
Financial advisor Granville Knight Jr says women should treat their finances as if life is one long date night.
“How do you manage when the date night takes an unexpected financial turn? Similarly, do you have ‘vex money’ when that catastrophic life circumstance strikes? Think about it — that sudden surgery, major home repair, loss of job, that family crisis. Wise financial planning can help you to mitigate the impact of such emergencies.”
He said an emergency fund is money set aside for any financial surprise that life just loves to throw at us.
“This, ideally, should be at least three months’ accumulation of your monthly salary. The thinking is that should you lose your job your family will not be affected by that loss as you will be able to meet your financial obligations during this period until you are again employed. Most professionals take approximately three months to regain full employment after losing their jobs.”
Knight said it is important to note that the emergency fund is a separate fund from your savings or investments, and should be placed in a separate account.
“This account should be very liquid (readily available) as the nature of the emergency may require immediate payment,” he said.
He emphasised that women should curb the impulse to splurge impulsively when they know that they have easily accessible extra money.
“Your emergency fund is definitely not to buy that new pair of Bridget sandals, lace frontal or three bundles of Peruvian remy,” he warned.
“You can use your emergency fund for any emergency expense not included in your budget. These expenses are often things like job loss, emergency hospital expenses, emergency home repairs (such as damage by natural disasters), emergency travel (not vacation), and health crises of other family members such as parents or children.”
He gave some advice on how to get your emergency fund started.
“An emergency fund is created over time, as it is impossible to save 100 per cent of your salary when you start a new job. So the principle is to fix it to the budget and save towards it over the shortest possible time. For young professionals, the ideal time is within the first year of employment.”
Many women who don’t have an emergency fund reason that they cannot maintain one because they are living from pay cheque to pay cheque, and they will very likely get a loan if an emergency comes up. Knight cautions against this notion.
“If you take out a loan, how will the loan be repaid? Unless you are going to find an additional source of income, the money has to come from the present income. Assess and adjust your budget, setting aside a small sum that will help you reach your goal within the next two years. Start small, grow big,” he advised.
He added: “If you are not sure where to begin, contact your financial advisor. Independence comes with planning wisely — not the dollars but the sense.”
