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How to Build an Emergency Fund (March 2023)

Dr. Mercy Otieno, Ph.D. Economics and Finance

@ International Foundation for World Freedom


An emergency fund is a money you set aside for urgent unexpected costs without borrowing money or draining your credit card. These can be things like medical expenses, income loss, emergency plumbing repair, car expenses, etc. The aim is to stay afloat in times of need.

The amount you need in your emergency fund should be enough to cover at least 3 months of your expenses in the absence of your regular income.

How to save for your emergency fund;

  1. Determine how much you need in your emergency fund and how much you need to contribute monthly to achieve your goal. To come up with the correct figure you need to take into account the following:

  2. The number of people in your household.

  3. The number of people in your household who have income sources.

  4. The minimum amount you need to run the household.

  5. The stability of the households’ major source of income.

  6. Set up a separate savings account for this initiative. This should be a high-interest account distinct from your regular savings account. The money should be readily available and should not attract high fees at withdrawal.

Some of the options include:

  1. An FDIC-insured savings account attracts a lower interest on your money.

  2. A certificate of deposit that proves higher rates, and a fee upon withdrawal of funds.

  3. Money market savings account, which are FDIC insured, provides higher rates and your money upon request. The disadvantage is that fees are charged to maintain and keep the account.

  4. Determine ways to boost your income/raise extra funds. Such are makings food at home rather than eating out, refinancing your mortgage and credit cards interest review, and taking up a second job.

  5. Schedule a monthly or bi-weekly auto transfer from your checking account to your emergency fund account.

  6. Adjust your monthly savings amount. As your income grows, you can make adjustments to the number of funds you transfer monthly to your emergency fund.

  7. Channel any extra money you receive into the emergency fund account. When you receive cash gifts, credit cards, and tax refunds, use the money to build your emergency fund account rather than using it all.


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