BOOSTING ONE’s emergency fund has been set as a priority for 2017. However, you can only boost something that is already existing or started.
Without empirical evidence, it is estimated that about 80 per cent of Barbadians have little or no emergency funds. So, the coming articles will not only describe how and why to boost your emergency fund, but how to establish one.
First, what is an emergency fund? It is a pool of cash saved that will help to maintain a relatively normal lifestyle in the face of the unplanned and unexpected financial setbacks in life. For example, you may lose your job; your car may breakdown or you may have an accident incurring expensive repairs; you may become ill or require expensive dental or vision care; or your dependents may have similar or other financial setbacks which you would like to help fund. Cash saved in an emergency fund can allow you to traverse such money crises with less stress.
Another key feature of an emergency fund is that it is cash that is readily available, that can be accessed in a day or two. This will have implications for where and how the funds should be saved . . . and also for how to deal with the temptations to spend that money other than on emergencies.
An emergency fund is essential at all times; it is not a response to a troubling economy. Rather, to the extent that an uncertain economy heightens the likelihood of periods of unemployment, rising prices and other negative financial circumstances, your already established emergency fund should be boosted. An emergency fund is an essential tool of personal financial management and financial stability no matter what the outward circumstances are.
In the absence of an emergency fund, you may be forced to seek a loan, or draw on your credit card to meet an unexpected expense. Some people may go to relatives or friends with their money crisis seeking to get a personal loan which sometimes is never repaid in full. Yet, it is important to recognise that everyone can have money setbacks – some people have fewer setbacks than others mainly because they manage their money better. So, exploiting personal relationships in handling an unplanned or unexpected expense can be seen as selfish and ultimately irresponsible when the loan is not repaid in full.
In building your emergency fund, you may start with smaller goals, yet eventually the sum you can begin to feel relatively comfortable with is a significant amount, say not less than six months’ cash expenses. This can amount to thousands of dollars. If you have been a poor saver in the past, a large sum of cash in one place can be an overwhelming temptation.
Steel yourself not to attack your emergency fund for such discretionary expenses; the saved funds are for emergencies. It is that very emergency fund that can reduce your stress about money as well as give you the scope to respond to the money emergencies in your life without having to depend on a loan from that same best friend or from a relative.
Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. Email LouiseFairsave@nationnews.com.
This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.
