I received a lot of questions about the emergency fund and how to make it work for you. We all have different goals and plans, and it would not be easy to generalise the advice. Instead, I spoke to some of you about your emergency funds, where you keep the money, if you have a target amount and what you use it for when you make withdrawals. There are several options, and you may come up with new ones. Remember, start the fund, make sure it is making money for you, store the money in a place that is safe and accessible, only withdraw when you have a real emergency.

Mercy: IT, 20s, In a Relationship, No kids

M: Yes. I save for investments as well as a living fund. However, I don’t separate the two. I want to be able to make deposits for three real estate investments as well as save enough money to cover my expenses for one year in case I decide to take a career break.  I split my savings between my SACCO (30%) and in an Old Mutual MMF (70%) account. I fund the savings from my side hustles and 60% of my salary. I haven’t had a reason to withdraw from the account yet and may add another goal next year to get a new car.

FN: I like the split between the SACCO and the MMF account. The MMF is earning you some revenue, and the SACCO will allow you to borrow if you’re short on your deposit or need money in a hurry. SACCOs provide some of the cheapest loans in the market and give you loans between 3 – 5 times the amount you have saved. As with all investment companies, do your due diligence before joining the SACCO. You can find a list of duly licensed SACCOs on the SASRA website .

Smith: IT, 20s, In a Relationship, No kids

S: I have recently set up an emergency fund. Since it is so new, I have only saved enough to sustain me for a month. I use a bank account, a chama and a Britam Imarika Investment account to save for my emergency fund. I am stricter with the chama and the MMF account. Once I receive my salary, I send a set amount every month to these accounts. With the savings in the bank account, it is more inconsistent, and I am likely to dip into it for sustenance which is why I haven’t moved it to the MMF account. I am creating a savings habit, and I will get better at it and reducing my obligations so that I can stop dipping into the account. I fund the account from my side hustle revenue saving up to 50% of the gains.

FN: I like that Smith has diversified his portfolio saving in chama and MMF account. Chamas are great for pooling funds, and they can give you very cheap or free loans when you need them. The trick with chamas is to find like-minded people who will keep you accountable and also follow the rules of the chama. Don’t lose your money from group investments that go wrong and do your due diligence.

Keep working on the saving habit, Smith.

Cate: Account Manager, 20s, Single, No kids

I put my money in a Sanlam MMF account and don’t separate my savings into functions. Quite frankly, my focus now is on buying a car and perhaps moving out.  I put the excess that I don’t want to spend at this time into the account. It is inconsistent as both the amount put in the account and frequency of saving is inconsistent. However, I save about 40% of my salary in insurance, pension and the MMF account. I have only withdrawn from the fund to help a family member. It would be best if you did not treat anything that you could have planned for as an emergency. Save for it.

FN: I’d encourage consistency and paying yourself first. Decide every month how much you want to save and consistently do that. Whether it is from your salary or your hustles have a consistent amount you save every month.

Richie: IT, 30s, In a Relationship, No kids

I don’t have an emergency fund. I save all my money in one place. Whether it is for investments or saving for a rainy day, all the money sits in my Sanlam MMF account. To fund my savings, I make a transfer to the MMF account immediately I get my salary. I can then spend on bills and other expenses. I save about 25% of my salary and then from the money set aside for expenses, I try to save as much as I can. I’m also a businessman and have other sources of revenue. I also contribute a portion of these to the fund, albeit a bit more inconsistently.

FN: Paying yourself first ensures that you always make savings, and you will not fail to make savings. Paying yourself first is an excellent habit to adopt, and MMF accounts have your money working for you. While shopping for an MMF account, check for the stability of the company you want to invest in, what their portfolio invests in, their published rates and how easy it is to deposit and withdraw funds. Most funds now use M-Pesa for deposits, making it easy for both business and employed people to fund their accounts. They also allow one free withdrawal per month, and you receive the money within three working days.

Kasha: HR, 30s, Married, No kids

Yes, I do. I put my money in a bank account and a Cytonn MMF account. I set aside 20% of my net salary and 10% of revenue from my hustles every month to fund these accounts. My spouse also contributes to this fund, although it is not always the same amount and as consistent. The only reason I envision for withdrawing from this account other than investments is for emergencies like medical bills for my family.

FN: Good job on starting a fund with your partner. You can pull your resources together and create a larger fund. Consider investing your money in mid-term investments like treasury bills and bonds above a certain threshold to diversify your risk if you do end up with a large pool of funds.

Alex: IT, 30s, Married, Two kids

Yes, I do have a separate fund, but I use it for both emergencies and investments. Typically, I run multiple projects at the same time, and the objective of the fund is to have some savings for a rainy day as well as an emergency fund to support my projects. I apportion a percentage of my salary to each project, including the fund. Currently, I apportion 5% which I save in a Sanlam MMF account because it earns a return and is easy to access. I sometimes save a little more or little less depending on how the other projects are doing and where it is needed most.

I do withdraw from the account, but I look at it as borrowing from myself and always make sure to replenish the account. For instance, recently, I needed to purchase a car for the business, and I was able to pay for the vehicle from this account and then recouped the cash from the business to replenish the account. I don’t have a target per se, but I do aim to have enough to keep the projects going until I get another source of funding.

Don Julio: Data, 30s, Single, No kids

Yes, I try to save $1,000 every year for just emergencies and maintain a separate living fund worth three months of my expenses. My living fund covers transport, rent, groceries, internet, and an amount to continue paying my investments should I lose my job or decide to take a career break. I only have $1,000 accessible at any time and use foreign mutual funds and a SACCO fixed deposit account to store the rest. The $1,000 is in a savings account which does not make much money for me, but it’s easily accessible. I fund my savings from my salary saving 10% per month and a percentage of my side hustles. I settled on $1,000 per year for my emergency fund because it is enough for a down payment, to cover any collateral requests or to get me out of a bind.

I define an emergency as spending on anything that wasn’t budgeted. I’d use my living fund if I lost my job but use the emergency fund for urgent expenses like repairs, replacements, and deposits for investments.

FN: This is an interesting one with the use of foreign currency mutual funds. Often, people save money by converting KES into USD with the hope that the value will appreciate and you can exchange it to KES at a higher rate than you bought it. Unless you’re travelling and will use the USD, a better option is to invest in dollar funds so that you own assets in dollars, get dividends in dollars and you can sell the asset for dollars. As with all funds, do your due diligence. Watch out for fees: be clear on what the sign-up and withdrawal fees are. Also, ensure you can withdraw your money without losing any benefits or if there’s a limit on how many times you can withdraw. Check if you have to make deposits every month and what that means when you are not able to make the payments as you can lose all the money you have saved. Lastly, because it is an emergency fund, don’t get into a fixed-term contract that prevents you from having access to your money. You can check out the mutual funds at Standard Chartered as a place to start.

Leah: Customer Relations, 30s, It’s Complicated, Two kids

Yes, I do. I send my emergency money to my mother since I like to spend money. My Mum is the custodian of how I spend the money and will often ask numerous questions before she releases the money to me. I fund the account primarily from my side hustles, putting 25% of my revenue to the fund. The deposits are random based on the deals I make. Emergencies include a sale for things we need in the family, the car has an issue, and medical bills for friends and family.

FN: I like the self-awareness Leah has of herself and her spending habits. Step one is to know where the problem is. I hope Mum is putting the money in a revenue-generating account so that your money is working for you.

One of the emergencies Leah mentioned was a clothes sale for children’s clothes. She categorised it as an emergency because she felt that she was getting a better deal than buying the clothes at a later date.

Mary: Administration, 40s, Married, Two kids

M: Yes, I have a savings fund. I save about KES 5,000 every month in a deposit account at Kentours SACCO. This is not the ordinary share account for SACCOs but a demand deposit account that is easily accessible and earns a small return. I have since used the funds in the account to build an investment property that will generate even more revenue.

Zablon: Operations, 40s, Married, Three kids

Z: No. A few years ago, I had an incident that depleted my savings. I also incurred a massive debt that I am working to clear. At the moment, I don’t save much. Sometimes it feels like everything that comes in goes out almost immediately. If an emergency popped up now, I wouldn’t know where to begin. I know I have to start small, pay myself first and be consistent, but it is always challenging to begin. Perhaps with the bonus this year, I can clear some of the more pressing debt and start to take charge of my finances. I think the lesson learnt for me is to pass on your risk. If I had insurance for my property, I might not have needed to incur so much cost.

FN: For both Mary and Zablon, take steps to start a new emergency fund. Things happen, and having a source of funds that helps you cover a portion of the expense as you find another source of funding could save you from financial stress. Start small; the 52-week challenge is a great place to start. Even if you commit to increments of KES 50, you will have KES 68,900 at the end of the year. This is money you didn’t have and could buffer you when you have an emergency.

Insurance is complicated and misunderstood in Kenya. Perhaps because insurance providers go out of their way to complicate things, have poor customer service, slow payout rate, and many exclusions they don’t take the time to explain before you start making payments. Worse yet, insurance is assumed to be a product for the rich. Part of financial inclusion has the right financial products for the right purpose. When it comes to protecting yourself, your family and your assets, an alternative to spending your savings or getting loans could be insurance.

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