Punch News Today

Managing an emergency fund


In this report, Funmi Fabunmi writes on effective ways to save and protect emergency funds

The essence of building a strong foundation for financial security cannot be over emphasised.

In today’s unpredictable world, having an emergency fund is crucial for financial stability and peace of mind.

An emergency fund serves as a safety net, providing funds to cover unexpected expenses, such as medical bills, car repairs, or job loss.

However, saving money can be challenging for many individuals and families.


The first step in saving emergency funds is establishing realistic savings goals. Start by evaluating your financial situation and determining an appropriate target.

Financial experts often recommend aiming for three to six months’ worth of living expenses as an initial goal. Consider factors such as monthly bills, rent/mortgage, food, transportation, and insurance. Breaking down the target into smaller milestones can make the process more manageable and motivating.


To save effectively, it is essential to create a budget and track expenses diligently. Review your income and categorise your expenses into fixed variables such rent, utilities, and other costs such as entertainment, dining out among others.

Identify areas where you can reduce spending and redirect those funds towards your emergency savings. Utilise budgeting apps or spreadsheets to monitor your progress and ensure that you stay on track.

By closely tracking expenses, you can identify unnecessary expenditures and make informed decisions that align with your savings goals.

Automate Savings

Automating savings is a powerful technique that eliminates the temptation to spend money intended for emergency funds. Set up an automatic transfer from your primary current account to a separate savings account each month. This process ensures that a portion of your income is consistently allocated to your emergency fund without requiring regular manual contributions.

By making savings automatic, you establish a disciplined approach to financial planning and gradually build your emergency fund over time.

Reduce spending

Reducing discretionary spending is a practical strategy for freeing up funds to allocate towards your emergency savings. Analyse your spending habits and identify areas where you can make adjustments.

Consider cutting back on non-essential expenses such as dining out, entertainment subscriptions, or impulse purchases. Instead, opt for more cost-effective alternatives like home-cooked meals, free or low-cost activities, and thoughtful spending. By being mindful of your discretionary spending, you can redirect those funds into your emergency fund, accelerating its growth.

Additional income

Supplementing your primary income with additional sources of revenue can significantly boost your ability to save for emergencies. Explore options such as freelancing, part-time jobs, or monetising your skills and hobbies. These endeavours can provide an extra income stream dedicated solely to your emergency fund. Moreover, consider selling unused items or decluttering your living space, transforming unwanted possessions into cash. By actively seeking opportunities to generate additional income, you increase your savings potential and expedite the growth of your emergency fund.

Minimize debt

Debt can impede your ability to save for emergencies. Prioritising debt repayment is essential to free up funds and create a stronger financial foundation. Start by identifying high-interest debts, such as credit card balances, and develop a repayment strategy. Consider consolidating debts or negotiating lower interest rates to reduce monthly payments.

Once you have a plan in place, commit to making consistent payments and avoid accumulating new debt. As you pay off debts, allocate the funds that were previously used for debt repayment towards your emergency savings. This approach will accelerate your progress and enable you to build your emergency fund more rapidly.

Emergency fund

Once you’ve established an emergency fund, it’s crucial to protect it from unexpected expenses or potential financial risks.

Separate fund

Keep your emergency fund in a separate account from your regular current or savings account. This separation helps prevent accidental spending and reinforces the notion that these funds are dedicated solely to emergencies.


Create a personal policy that dictates when it is appropriate to dip into the emergency fund. Define what constitutes a genuine emergency, such as medical emergencies, major home repairs, or unexpected job loss. Avoid using the fund for non-essential expenses or impulse purchases.


Strive to maintain a buffer in your emergency fund that accounts for inflation and any potential increase in expenses. Regularly reassess your savings goal and adjust it accordingly to ensure that your emergency fund remains sufficient to cover unforeseen circumstances.


Evaluate your insurance coverage to protect yourself against potential financial risks. Adequate health, auto, home, and life insurance can provide a safety net and reduce the burden on your emergency fund in case of emergencies or accidents.


Treat your emergency fund as a priority and make replenishing it a consistent practice. If you need to use funds from your emergency account, develop a plan to replenish the amount as soon as possible to maintain its intended purpose.


Periodically review your emergency fund strategy and adjust it based on changes in your financial situation or life circumstances. Revisit your savings goals, budget, and potential risks to ensure that your emergency fund remains adequate and aligned with your needs.

Speaking to The PUNCH, a financial analyst and fraud examiner with experience in cash flow management, Odun Oguntoyinbo, says, “Saving and protecting an emergency fund is a vital component of achieving financial security and peace of mind.

“By setting realistic savings goals, creating a budget, automating savings, reducing discretionary spending, generating additional income, prioritising debt repayment, and protecting the fund, individuals can establish a strong financial foundation.

“Through these strategies, individuals can build a robust emergency fund that provides a safety net during unexpected events, fostering financial stability and enabling them to navigate challenging times with greater confidence.”

Source link