Having a fully covered emergency fund (three to six months of your living expenses) is vital to your financial health. Ideally, the best places to store your funds are in instruments that offer liquidity. This is the most crucial feature to consider when making your decision.
Having a fully covered emergency fund (three to six months of your living expenses) is vital to your financial health. Most people downplay the role an emergency fund plays as an essential personal finance tool. You can’t foresee an accident, but you can choose to be proactive by building an emergency fund for whatever life throws at you e.g. COVID-19. If you’re thinking of building your emergency fund, the next question would be, "where do I put it"?
Ideally, the best places to store your funds are in instruments that offer liquidity. This is the most crucial feature to consider when making your decision. OVERWOOD offers liquidity and flexible withdrawal windows even though its products are designed for long-term investments, not short-term savings. A traditional savings account might be your first choice, but other liquid instruments can keep your funds safe while you earn interest. By earning interest on your savings, you’re balancing out the probable effect of inflation on your funds. In foresight, the funds earmarked for emergencies should be housed differently from your periodic savings.
Saving your emergency fund in a money market account will earn you more interest than conventional savings or current account. Some MMAs in Nigeria offer you the opportunity to earn an increased yield on short term investments. With the added benefit of a debit card and check-writing ability, your funds can always be easily accessed. Before deciding if this account meets your savings needs, you should do your research and consider all possible fees.
High-yield savings account
A high-yield savings account differs from your traditional savings account because of the interest rate. While you might not get rich using this account, you can earn some extra cash on your emergency fund. Most high-yield savings accounts are found at online banks. Research on options with competitive interest rates, and consider other factors like the minimum balance requirements and account fees when making your decision.
Certificates of deposits (CDs)
The best way to save your money is to put it where it can earn interest. To earn even more returns, you can consider Certificates of deposits. It’s essentially an agreement with the bank to use your money for a fixed period in exchange for interest. The maturity for CDs in Nigeria ranges from 30 days to 5 years. While you get to choose a tenor that best works for you, the drawback is the penalty that may be incurred as a result of early withdrawal.
Treasury bills are another option for your emergency fund, and they are the most liquid securities. They are government-guaranteed debt securities that mature within a year. With treasury bills, you are loaning the government your funds in exchange for an interest. The maturity date varies, and the longer the maturity date, the higher the interest rate. Thinking long term, it can put extra money in your pocket.
How to Create a Zero Based Budget
Creating a zero-based budget might seem tasking, however, using the right digital saving and banking tools will make the process easy to start. With zero-based budgeting, you will understand how your hard-earned Naira is being spent (expenses, debt, and investments).
How To Manage Your Cash Flow
The concept of managing your personal cash flow is to ensure effective use of the funds available to you in order to maximize profitability. Effective management of your funds can help you build wealth over time and save you from financial pits. By intentionally channeling the movement of your cash to needs rather than wants, assets rather than liabilities, you're taking directed steps towards financial freedom which gives you time, control and options.
