How to financially prepare for uncertainties

Did you know that according to a government report released in 2021, about 740,000 Kenyans lost their jobs due to the COVID-19 pandemic? The number of employed people at the time dropped from 18.1 million to 17.4 million. No one foresaw the COVID-19 pandemic which meant that a majority of Kenyans and people all over the world were ill-prepared to face the economic recession that followed. 

Uncertainties are all those unpredictable things that happen to us like accidents, falling ill, a loss of a relative, getting fired, a business going under, etc. Normally when faced with an emergency, we turn to our savings but what happens if you have no savings? You wind up applying for a loan without a proper plan in place of how you are going to pay off that loan. 

So, on top of getting money for your  day-to-day needs and expenses, you also have to raise money that will pay off your loan together with its interest. 

Stressful isn’t it?

The fact of life is, emergencies are inevitable and you need to know how exactly you can financially prepare for these uncertainties.

Here are some tips on how you can be better prepared to combat uncertainties:

1) Establishing an emergency fund

An emergency fund is a financial safety net that you can tap into when you run into unexpected expenses. Now, most people use their savings as their emergency funds but these are two different things. Normally, we put money in our savings accounts because we have a goal in mind. You either want to invest in a given project or make a big purchase such as land or a house. Money you set aside for these reasons is called a sinking fund. 

An emergency fund is different. It  is an account meant to cater for future mishaps like when a loved one falls ill or when your car suddenly breaks down or even when you lose your job. This account, typically, should be worth approximately 6 months of your living expenses. And it should be highly liquid. This is to mean that if an emergency did occur, you would be able to access the money in your emergency fund quickly.

A good place to store your emergency fund is a Money Market fund, which allows your fund to grow with better interest rates than a normal fixed deposit bank account would.

2) Increasing your income 

The cost of living is getting higher every day. The current rate of inflation in Kenya is 9.6% , a factor that has made purchasing basic household necessities difficult. Relying on one source of fixed income is becoming increasingly dangerous.

It is often said that one source of income is too close to none. Therefore, to effectively prepare for uncertainties, you should either increase or diversify your income streams.. You can do this by investing your money in certain entities to earn passive income, getting a side hustle, landing a promotion, or establishing your own business. 

Before doing any of these things, you need to sit down and conduct extensive research. You need to ask yourself questions such as which investments are safer yet still more lucrative for a beginner or which are better suited for your risk profile? Can you still be productive in your main job if you get a side gig? What are the perks and downsides of getting a promotion? Is your business idea viable in the current market and how will you  finance it? 

Having multiple streams of income will provide you with a financial cushion during emergencies.

 3) Start tracking your expenses

A budget. You’ve heard of it, you probably always make one but then you never quite stick to it, do you? Somehow, at the end of the month, you find yourself having used more money to cater for your needs than you had anticipated. This happens to the best of us.

Tracking your expenses helps you learn where your money is going instead of wondering where it went. This, in turn, will help you know how you can cut down on some expenses and optimize your spending habits. For instance, you may be purchasing the smallest can (100g) of Blueband throughout the month because you think you are saving up on cash. However, upon tracking your expenses, you realize that this repeat buy is actually more expensive than buying a larger can (500g) of Blueband. 

If you have any difficulties tracking your expenses manually, you can download an expense tracker app. These apps help you categorize and observe your expenses across different investment and bank accounts. Additionally, some of these apps offer perks such as mileage tracking, budgeting tools, financial advice, credit monitoring, and receipt keeping. 

Tracking your expenses helps you to spare money for your emergency fund as well as savings and investment accounts.

4) Get coverage

Catering to emergencies such as medical expenses or funerals can be quite expensive. An article published in 2021 by Allafrica disclosed that only 20% of Kenyans have any form of health insurance. This is a worrisome figure as it means that a majority of Kenyans are paying for health services out of their pockets. And sometimes, relying on the National Hospital Insurance Fund (NHIF) can only get you so far.

Health care is expensive. You never know what your treatment will require or how much money you will end up spending in a hospital. Getting health insurance can save you a lot of money in the long run. The same case applies to emergencies such as theft, fire, death, and so on. 

While insurance can be costly to maintain, it does come in handy during times of unforeseen mishaps. But don’t just pick an insurance policy blindly. Choose the one that best works for you! 

Creating an emergency fund and keeping it alive, coming up with a budget and sticking to it, choosing an investment plan, and consistently directing money into your bank account can sound like a daunting task.

However, in order to efficiently perform these financial tasks, you need to become financially literate. How do you do this? Sign up for Kuzah’s financial literacy course. 

What is Kuzah?

Kuzah is a Kenyan-based online platform that acts as a guide to youths during their financial journey. The organization is focused on helping young individuals attain financial freedom. 

Kuzah offers an online course geared towards helping youths gain financial literacy. In this course you will learn how to practically:

1) Create and maintain a budget.

2) Invest in avenues best suited for you.

3) Track your expenses.

4) Create an emergency fund.

5) Develop a healthy money mindset.

6) Plan for your retirement.

7) Manage your debts.

Let’s face it, the only way you can become fully prepared to combat emergencies is when you become financially literate. 

So, what are you waiting for? Visit the Kuzah finlit course page today!