Lisa’s Emergency Fund Journey
August 2023
Life has been good to Lisa Meni (aka Lisa Meneli), she got a job a few months ago at Chello, a well-known multinational manufacturing company. The pay is incredible (the type you don’t mention in polite company or “they” will call you proud), she is about to buy a nice 2 year old Toyota Camry (Chrome black) and can finally plan trips with her friends for summer break.
May 2024
It’s been almost a year since the new job, while things have been generally okay – Lisa got a nice one bed apartment in Lekki 1(a nice highbrow area for young professionals in Lagos) in January 2024-
But she is a bit unsettled right now. There have been rumors of layoffs at work. The foreign exchange volatility has been particularly tough on Chello, as the company imports most of its raw materials.
Chello had expected positive economic indices following the change in government but the delays in policy implementation and slump in crude oil prices has led to a slowdown in economic activity.
Lisa has realised that this is the time to take her saving seriously. She had been half-hearted about it, only setting aside less than 5% of her salary (when she remembers). She had read something about a rainy-day fund but with her current lifestyle and expenses, it may be difficult to cut back and save more.
March 2025
Lisa was laid off in February 2025. She was one of the first to go as the company used the LIFO (last in first out) redundancy option. It’s been less than 20 days since she stopped work but there are real concerns about her ability to get a new job with the prevalent economic environment. Lisa was able to save enough to cover her expenses for two months. It’s not much but she is hoping to find work before her money runs out.
Why You Need an Emergency Fund
Lisa’s story is like that of quite a few people right now. She got a great job and life seemed to be moving in the right direction then all of that changed when she lost her job. Thankfully, she had some savings but realized that this would not last for long.
The crucial question is this:
When the unexpected happens, how do you handle it?
Do you seek financial help from family and friends, take out a loan, use a credit card or do nothing? A quick answer and one thing that can help reduce the impact is to have an EMERGENCY FUND.
In simple terms, an emergency fund is money set aside to cover the financial surprises and unexpected events of life. Many of these events are not only stressful and devastating but could also be very expensive.
Some of the common emergencies are:
- Medical emergency or debilitating illness
- Job loss
- Car issues
- Bereavement in the family
- Home repairs and incidents
It could also be for an intentional emergency. For instance, if you have to leave your job because it’s become so toxic that another week or month will be torture, would you have the means to do so?
How to create an EF:
The first step is to start now!
If you don’t have one or started one but stopped when things were rosy. Please continue.
Some statistics show that about 54% of people expect a negative outlook(instability and risk of global catastrophes) in the next 10-year period. Let’s try a little exercise.
In the last 10years, how many major but unplanned expenses have you had to make?
I just checked mine and I’m surprised at the unprecedented number of life’s curveballs thrown my way. This just goes to show that in life, bad (not so good) things will happen. We need to create those buffers to lessen the impact of such occurrences.
The little steps you can take today:
- Use a separate account.
If you’re like me, you probably have a few accounts (you know you do). Choose one of these for your emergency fund. I will suggest that the money is not co-mingled with any account you usually do business with or use regularly.
- Automate transfers.
If you believe it may be difficult for you to coordinate the transfers or you’re likely to forget to make the deductions, then you can sign up with your bank to automate this process. You can tie this transfer to a day or a few days after you receive your income or some other inflow.
- Save the change.
If you’re not sure where the additional money will come from to create your EF, how about you start saving your change. Many times, we toss the change we receive from grocery shopping, toll payments and other little purchases. You can have your very own savings jar and put the money in there. Remember that an Emergency Fund is different from your general savings account so should be in a different pool.
- Avoid Lifestyle Creep
From Lisa’s story above you will notice that she suffered from a serious case of lifestyle creep. Her standard of living and cost of living grew with the rise of her income. This is a dangerous financial habit that can leave you with more expenses than investments. Avoid increasing your expenses (to the extent possible) when you receive additional income or gifts. Save that difference to your emergency fund.
Three Benefits of an Emergency Fund
- You have a financial buffer to help you prepare for life’s eventualities.
- It keeps you out of debt and uncomfortable situations arising from debt.
- It is another way to save money and protect your investments.
What is the optimal size of the fund?
There have been different opinions on how much you should save in an emergency fund. The general expectation is that you save enough to cover the expenses of at least 3 months. I would usually suggest you go for at least 6 months of your monthly expenses and can increase this as you go along. It never hurts to have a sizable emergency fund.
However, I do realize some of us don’t have a clear idea of our monthly expenses. One quick tip will be to track your expenses this month to glean what your expenses are usually like. This exercise will also help you cut out any money leaks.
“The journey of a thousand miles begins with one step”
Lao Tzu
You can take that step today to be better equipped to deal with life’s curveballs.
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