Investing would be much easier if unplanned expenses did not crop up every now and then. No matter how well you budget, it is very likely that you will have to make a payment which will fall outside your plans for a particular period. It is important therefore to create an emergency fund which you can rely on to meet such unexpected expenses in order to prevent you from withdrawing funds from your main investment accounts. In this post we will explain the process you can go through to develop a robust emergency fund.

 

1. Be realistic. An emergency fund should be large enough to prevent you from liquidating your long-term investments but not so large that it does not allow you to allocate enough to your long-term investments. A good rule of thumb is to save between 3-6 months of your income. If you have dependents, it is better to aim for at least 6 months of income because the possible number of emergencies that could arise is directly related to how many people rely on you for support.
2. Do not sacrifice liquidity. A good emergency fund needs to be able to provide you with your money when you need it. It is no use having an emergency fund that yields high returns but would only be able to honour a withdrawal request after more than 5 days. A fund like the IC Liquidity Fund gives you access to your money within 24 hours of making a withdrawal request.
3. Pick a fund which maintains the value of your money. Even though liquidity is essential, an emergency fund that does not maintain the purchasing power of your money will leave you unable to meet an emergency when it shows up. So keeping a large balance as an emergency fund in a savings account may not be ideal. The IC Liquidity Fund for example aims to provide similar returns to treasury bills with much better liquidity.
4. Replace the money you take from the emergency fund. When you withdraw money from your emergency fund, you should immediately make plans to start rebuilding it. Failure to gradually rebuild the fund will leave you unprepared if another emergency should strike. With the IC Liquidity Fund, you can set up a standing order which automates the process of building up your fund thus ensuring that you will always be ready for an emergency.
5. If it’s not an emergency, don’t tap your fund. If you find yourself always withdrawing from your emergency fund then it’s no longer an emergency fund. It’ll be better that you create another account for recurring expenditure while you maintain an emergency account for when you truly have an emergency.

 

If you want to build an emergency fund to cushion yourself in these difficult times, IC Liquidity Fund is exactly what you need. With competitive returns and payment of withdrawal requests within one working day, you can be sure that IC will keep your hard-earned money for when you need it most. You can sign up through the website (IC Wealth – Home), talk to us on +233 (0)308250051, or email clientservice@ic.africa to get started.

 

Thank you for reading.