6 Practical Ways to Build Your Emergency Fund

An emergency fund is money set aside to handle emergencies that come your way. It offers you a financial safety net to keep you going without increasing your debt.

Many personal financial advisors recommended that your emergency fund should be about three to six months worth of expenses. If you can increase it to one year, that’s even better.

How to build your emergency fund

When you calculate how much you need to save to cover three to six months worth of income, it may look like an impossible task. Especially if saving has been a major challenge for you in the past.

But with this post, I’m going to give you ideas on how to start and build your emergency fund.

Pay yourself first

When I started building my emergency fund, I set a goal of saving 10% of my income. As time passed, I realised that I kept missing that goal.

In hindsight, my biggest mistake was I did not pay myself first. I paid all my bills, then spent on entertainment and other unnecessary expenses and whatever remained is what I saved.

Now I use the pay yourself first strategy. This simply means instead of saving what is left over, I first put aside the money that I need to achieve my monthly saving goal first. Then I spend what remains.

Switching to a new strategy can be challenging at the beginning. Pay yourself first is no different. I find the easiest way to get started is to set up a standing order.

The standing order instructs your bank to transfer money to your emergency fund. If you do this right after your income hits your bank account, then you won’t have access to it. And if you don’t have access to it, you won’t spend it.

Reduce your spending

If you reduce your spending, you can use the extra money to build your emergency fund. The challenge is to find ways to reduce spending without a drastic shift to your lifestyle.

If you look closely at your spending habits, you will find things you could change.

For example, you could be spending an average of KSh 5,000 every weekend going out with friends. If you were to reduce it to twice a month, you would free up KSh 10,000 each month.

Or instead of paying KSh 400 to wash your car at the car wash every 2-3 days, you could pay someone Ksh 100 to do it for you. And you save KSh 300. If you add it up at the end of the month, you will find that it’s a significant amount.

Increase your income

Look for things that could increase your income. We usually call this a side hustle. This could be working on freelance projects, selling goods online etc.

For many of us, we always look for an idea that will generate lots of money. But you can start small. If your side hustle puts KSh 1,000 in your pocket per month, that’s KSh 12,000 a year. That’s money that you would not have if you just sat waiting for the next big thing.

And if you add this income to your emergency fund, your fund would have grown by KSh 12,000 at the end of the year.

Save the extra income

After working so hard at your workplace, you get rewarded with a bonus or promotion. If you are like most of us, the first thing you do is to think of how to spend that money. You know, go on holiday, buy that fancy new car or move into a bigger house.

While it’s great to reward yourself after working so hard, most of the things that we will spend on, add no real benefit in the long run.

If you instead focused on saving the extra income and building your emergency fund, then a time will come when you can spend on those luxuries knowing that you have a financial safety net.

Keep the change

When you board a matatu and give the conductor KSh 100 and he gives you KSh 30 change, put it aside. When you go to a shop and buy something and get KSh 20, put it aside.

At the end of the month, if you add it all up, you will be surprised by how much money you would have saved. And if you keep adding it to your emergency fund every month, by the end of the year, it would have grown significantly. And all that through your spare change.

Save the leftovers

One thing that I like to do is save what remains at the end of the month. This is after I have paid myself first, paid all my bills and expenses and still have some money left over.

It might not be much but if I let it cross over to the next month, I’d end up spending it on something unnecessary.

Final Note

Building your emergency fund should be a priority for you because unexpected expenses will come your way. That is part of life. It may not be an easy task for you to save three to six months worth of expenses, but with time and commitment and the right strategy, you too can do it.