How to Build an Emergency Fund in Kenya [Easy Methods]

Financial emergencies happen unexpectedly. They can range from needing a new tire to having a job emergency, such as being laid off. They can also include medical emergencies that result in costly bills.

If you don’t have enough money to cover these expenses, you may be thrown into financial disarray and probably end up depressed.

Lucky for you, there is an easy way to avoid this. All you have to do is create an emergency fund so that you are well-prepared for those rainy days.

In this guide, we will show you how to create an emergency fund in Kenya, why they are important, and how much money you should keep in your emergency fund.

What is an Emergency Fund in Kenya?

An emergency fund is a sum of money that you set aside for times when things don’t go as planned. This ensures both financial stability and peace of mind. However, the definition of an emergency is subjective and will differ depending on who you ask.

For instance, lucking a gym subscription fee can be an emergency for someone but for some people, it is utterly unnecessary. Then there are those people who would say that their car breaking down is an emergency because they need to go to work and feed their families.

No matter how you look at it, emergencies will happen, and knowing that you have money set aside for such times can bring great peace of mind.

In a nutshell, financial emergencies can be things like:

• Your car breaking down
• Going through a costly medical treatment
• Losing your job
• Losing your phone
• Funeral expenses
• Sudden travel
• Unexpected veterinary bills

You have to determine what your financial emergencies are so that you can save money for them. You should also consider how much money it would take to cover these emergencies.

How Much Money Should You Have in an Emergency Fund?

Financial experts typically recommend that you should have between three and six months’ worth of expenses set aside in an emergency fund. For example, if you spend around KSh. 20,000 each month, you should have between KSh 60,000 and KSh 120,000 in your emergency fund.

The actual amount will depend on a number of factors, such as your living expenses, your age, whether you have kids to support, and the amount of debt that you owe.

And while we think three to six months of expenses should be sufficient, it’s not foolproof. If you are the sole breadwinner in your family, then you should have a more substantial emergency fund.

It also depends on how much debt you have because if you have high-interest loans, then it would be wise to pay them off before building an emergency savings account.

Here are some factors to consider when deciding how much money to put in your emergency fund:

• The number of dependents you have
• Your total income
• The nature of your job (Permanent or contractual )
• The amount of debt you have
• Your financial goals
• Your monthly expenses
• Whether your partner ( if you have one) can help or not.

Where to Keep Your Emergency Fund in Kenya

You can store your emergency fund in a high-interest savings account like Mshwari or Mali. That way, you will earn interest on the money while ensuring that it is readily accessible when you need it.

You can also use an online checking account for this purpose if it has a savings feature and no ATM fees because you will need to withdraw cash often.

If you want the money to remain available for emergencies but yet not be easily accessible, then you can stash it in a lock savings account (Like M-Shwari).

I recommend if you are more inclined to spend impulsively on non-emergencies or get tempted into investing your emergency fund.

I don’t recommend investing your emergency money because you might find yourself needing to use it at a time when it’s not readily available.

The point is to put the money in an account that you can easily access when you need to.

How to Save For Emergencies in Kenya

No matter how much money you make, saving for your emergency fund is possible.

What you need to do is set aside a little of your income each month into that account until it reaches the recommended three or six months’ worth of expenses.

Keeping track of all your expenses will help you easily determine how much money to put in your emergency fund.

Here are some tips to help you create a reliable emergency fund.

1. Determine How Much You Spend in a Month

Knowing your monthly expenses will help you know how much to save for emergencies. To do this, you will need to list all the expenses that you have every month from groceries, rent to electricity bills.

And don’t forget those pesky smaller items like your morning latte or a newspaper subscription. The idea is not to miss any expenses because they might seem insignificant but if you add them all up, you will be surprised at how much they amount to in a month.

After knowing how much you spend in a month, you will then decide how much to save each month towards your emergency fund.

2. Create a Budget

Your budget is the most important step in building an emergency fund. This helps you figure out the amount of money you can save for emergencies.

Once you get your expenses and income straight, you can add all the expenses and subtract the income from it to know how much you can set aside.

3. Start Small and Increase As You Grow

The more you save, the better. But don’t start with a lot because you might find it overwhelming and quit halfway.

Start small and gradually increase the amount until you reach your ideal emergency fund amount. This will give you a chance to practice saving for emergencies with smaller amounts of money before having to put away a larger sum.

Also, you don’t have to save for a whole three or six months at once. You can put in a small amount each month and gradually increase it over time as you get used to saving.

3. Make Saving Automatic

Make saving for emergencies automatic by setting up an automatic deduction from your checking account into your emergency savings account.

This will help you stay committed to your goal of saving as you won’t need to actually go through the process of transferring money into your emergency fund.

Remember that there is no standard amount for how much money you should put in an emergency account. The idea is to put away enough until it covers your expenses for at least three months and not more than six.

You can also try getting a part-time job to help you save for emergencies if your full-time work doesn’t provide enough income. Or you can request that your employer deposits a portion of your salary directly into the savings account every month.

READ: 13 Genius Ways to Save Money in Kenya [2023 Ideas]

4. Reduce Your Debt

Reducing your debt is an effective way to free up money that you can then save for emergencies.

The less money you spend on paying off credit cards or loans, the more you will have to put toward your emergency fund.

This will not only help you establish a reliable emergency fund but also increase your chances of meeting your other financial goals for the future.

READ: How to Quickly Pay Off Debt in Kenya [12 Strategies]

5. Keep Track of Your Expenses

It is important to monitor your expenses not only when building an emergency fund but also in general.

Keeping track of all the things you spend money on will help you know where to make cutbacks or cancel subscriptions that are eating up your income while adding no value to your life.

This way, you will keep only the expenses that are necessary and reduce your stress of having to deal with unforeseen emergencies.

6. Take Advantage of Your Bank’s Benefits

If you have a bank account, it is important to take full advantage of its benefits. These include free services like free checking with withdrawals and online bill payments.

Having a bank account will make it easy for you to put money away every month without having to withdraw cash or pay fees for holding your savings in another place.

It is also important to check with your bank on the different ways you can save, which include opening a certificate of deposit, getting a high yield savings account, etc.

Having your accounts in one place will make it easy for you to monitor them and reduce the risk of losing track of expenses or interest rates that eat away at your earnings.

7. Cut Back on Unnecessary Expenses

Cutting back on unnecessary expenses is another way to put money towards your emergency fund.

By prioritizing essentials like food and shelter only, you will be able to set aside the excess for savings.

Focus on cutting out any expenses that don’t provide value to your life or drain your energy like subscriptions, expensive clothes, dining out with friends, etc.

Remember that it is important to focus on essentials like food and shelter before making savings a priority.

8. Create Multiple Accounts

If you are having trouble saving for emergencies because your other financial obligations provide too much competition for your attention, consider creating multiple accounts to separate out the different purposes of money for easier tracking.

For instance, you might want to consider opening a savings account dedicated solely to your emergency fund.

This will help differentiate the money that is supposed to be used for emergencies from the money that is meant for other purposes like saving up for home renovation or college tuition.

9. Track Your Progress

It’s important to track your progress when saving for emergencies to make sure that you’re on the right track.

You can do this by keeping track of how much you are putting away every month and checking if your efforts are succeeding.

You might also need to take time off once in a while so you don’t burn out, which will cause you not to stick with your goals.

Tracking your progress and taking breaks will help you stay on track and maintain your enthusiasm for saving.

The Bottom Line: Why is an Emergency Fund Important?

An emergency fund is important when you have unexpected expenses that can affect your financial stability.

Having an emergency fund allows you to remain in control of your money and provide much-needed relief in times of crisis.

If you follow these tips, you should be able to have your emergency fund account up and running right away. Remember that there is no right time to start.

You can start with the small amount you have and then increase gradually until you hit your target.