CIC Blog

WHAT IS AN EMERGENCY FUND AND WHY YOU NEED IT

Two years ago, no one would have predicted that there would be a global pandemic affecting the world. The current pandemic has served as a good reminder on the importance of building an emergency savings fund you can easily tap into during times of financial distress. Having access to liquid savings can lower financial stress for many families especially in times like these.

An emergency fund is a cash reserve that is specifically set aside for unplanned expenses or financial emergencies. Most financial experts encourage one to set aside six months to one-year worth of living expenses in an emergency fund. This fund can be used to cater for large or small unplanned bills or payments that are not part of one’s routine monthly expenses and spending.

Since the COVID19 pandemic began, coming up with funds to cover major expenses has been a difficult task for most people in the country. According to the Nielsen consumer index survey conducted in Q2 2020, only 20 per cent of interviewed Kenyans said they had spare cash down from 27 per cent in the previous quarter.

According to data from the Kenya National Bureau of Statistics, there were over 1.7 million jobs lost as at Q3 2020. The Kenya National Bureau of Statistics survey on socio-economic impact of COVID-19 on households states that 18.4 percent of households have received cash transfers or remittances from relatives or friends since the first case was confirmed in Kenya. 41.9 percent of Kenyan households have cut their budget in order to cope with COVID-19 related financial distress, states the report.

In September 2020, Kantar a data and evidence based agency conducted a survey in Kenya on COVID19 complex policy challenges facing the Government. The survey stated that 67 per cent of Kenyans reported using money or assets saved for education to meet their daily needs while 53 per cent without dependents were also using their education savings or other assets to get by.

Without savings, a financial shock however minor, could set you back which could lead to one incurring many debts. You therefore need an emergency fund account to help you pay for emergencies without having to turn to loans, or other borrowing options that create unnecessary stress.

A money market fund is one of the perfect vehicles to open as an emergency fund account as they are easy to use and offer stable interest rates. They are regulated by the Capital Markets Authority ensuring that your money remains safe. With as low as Ksh5000 you can open a money market fund account and start your daily, weekly or monthly savings. With CIC Money Market Fund, you can easily make withdrawal requests through the mobile app “CIC ASSET” or through the online portal or email and funds get credited into your bank account.

Setting up an emergency fund is one essential way to protect yourself, and the first steps you can take to start saving. An emergency fund reduces the chances of one adding to their debt with each financial obstacle they experience. It also protects one’s retirement savings by ensuring that you have access to funds to handle any emergency as well as developing a saving culture, thereby reducing the chances of impulse buying.

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