How to Create an Emergency Fund in Kenya– The Ultimate Guide

Can you meet the cost of an emergency in cash anytime? Like many Kenyans, you would probably borrow from the common loan apps without CRB checks or go for a salary advance to solve an emergency. However, if you create an emergency fund today, you can withdraw the cash and solve urgent situations with it in the future. This explains why you should know how to create an emergency fund in Kenya.

Today, we’ll discuss how to create an emergency fund in Kenya. You’ll know the do’s and don’t for success. Keep reading! 

What Is an Emergency Fund? The Overview

An emergency fund is a lump sum that you save for emergencies or unplanned expenses. It’s not for meeting your regular monthly costs. 

An emergency fund should help you solve urgent costs like school fees arrears, car repairs and loans, home renovations, medical bills, etc. Ideally, an emergency fund should last between three and six months

A financial problem of any magnitude can throw you into a debt trap you might never come out of. It can hit you so hard that your only choice is to borrow from banks, mobile loan lenders, shylock services, friends, etc.

Most people find it harder to save money and easier to get into debt. If you are bad at saving money, you should strive to maintain financial discipline. You do not necessarily need a lump sum when starting the emergency fund. You can start with a small amount as long as you stay focused. 

How to Create an Emergency Fund Effectively

You can use different strategies to create an emergency fund. To determine the best strategy for you, identify anything that could prevent you from saving money. This can be impulse buying, poor budgeting, previous debts, limited income sources, etc. 

After that, try the following emergency fund-saving tips:

1. Form a Saving Habit

Saving money is hard unless you are intentional about it. This means starting a saving habit and focusing on it every day. Find a good reason to set up an emergency fund and make it your goal. Once you have a saving goal, dedicate yourself to it. 

After that, determine the best system for making your contributions. For instance, you can set up an automatic recurring transfer system with your bank. Set the amount to save and the frequency, including daily, weekly, or monthly. 

Saving towards your goal can be challenging if you do not monitor your progress. So, find a way to see your current account balance anytime. It can boost your motivation and keep you focused on the goal.

If your progress is good, find ways to reward yourself. A reward has a way of helping people excel and achieve all their goals. The saving habit strategy of starting an emergency fund is perfect for salaried people with a consistent income. 

2. Manage Your Income and Expenditures

How you receive and spend money is crucial when creating an emergency fund. You can adjust your monthly budget by tracking your income and expenditures.  

For instance, you can set one date for paying all your utility bills and other recurring costs. Once you receive a salary, pay bills first. After that, deduct your emergency fund contribution from the remaining income. 

If you earn an irregular income, you can add more cash to your emergency fund account when your income is higher. Manage your income and expenditures to start an emergency fund if you are prone to impulse buying. 

3. Save When You Have a Money Influx

There will be a few times in a year when you get a money influx. This can be a cash gift from a friend or company, a tax refund from KRA, proceeds from a side hustle, a perk from your employer, etc. Do not spend all this money and regret it later. 

Instead, add some of it to your growing emergency fund. If your cash flows are irregular, add all this money to your emergency fund to secure your life even more.

4. Save Through Your Boss

Another tip on how to create an emergency fund includes saving via your employer. Ask your employer to split your salary and deposit each half in a separate account. Open a checking account and a savings account and share the details of each with your boss. 

The employer will automatically send your emergency fund contribution to the savings account on your payday.  

5. Have Multiple Income Sources

Side hustles help most Kenyans survive and plan for the future. If you are employed, and your employer leaves some free time for you every week, consider creating multiple income streams

Look for the most successful side hustles and pick one for a start. Some promising side hustles to consider include:

  • Consultancy: If you have underutilized skills, open a consultancy service and run it from home after work. If you make more money, increase your emergency fund contributions. 
  • Freelancing: Utilize your skills in writing, graphic design, web development, or digital marketing to offer freelance services on platforms like Upwork, Fiverr, or local Kenyan websites.
  • Home-based tutoring: If you’re knowledgeable in a particular subject or skill, you can offer home-based coaching services. There’s a growing demand for tutors, especially during the holiday season. Physics and Mathematics are some of the subjects in demand.
  • E-commerce: Start an online store and sell products on platforms like Jumia, Kilimall, or even set up your own website or social media store.
  • Blogging or vlogging: If you have a passion for writing or creating videos, consider starting a blog or YouTube channel. You can monetize your content through ads, sponsored posts, or affiliate marketing.
  • Ride-sharing or delivery services: You can become a driver for companies like Uber, Bolt, or work as a delivery driver for services like Jumia Food or Glovo.
  • Event planning and catering: If you have a knack for organizing events or cooking, consider offering event planning or catering services for parties, weddings, and other special occasions.
  • Farming and agriculture: If you have access to land, consider starting a small-scale farming venture, such as poultry farming, vegetable gardening, or dragon fruit farming.

6. Pay Old Debts

Debts can make it harder for you to save an emergency fund. As you pay your current debts, try not to create new ones. If you stop borrowing, you can focus on paying old debts. 

Lenders are always willing to create a convenient debt repayment plan with you. Approach them and discuss the way forward while considering your goal for setting aside an emergency fund. 

7. Increase Your Contributions After Repaying Debts

Clearing your debts is a big sacrifice, as does saving for emergencies. When you finish paying off debt, redirect your monthly debt contributions to the emergency fund account. It is one way to increase your funds without making further effort.  

8. Use Your Fund for Actual Emergencies

Few people can leave their savings alone. If you lack this discipline, your effort might bear no fruit. You should spend your emergency funds only when facing genuine financial urgency. 

Find other ways to settle your short-term needs, including asking for a small salary advance. But, you can withdraw the money from the emergency fund account if you have a sudden illness, job dismissal, or disability due to a car accident. 

9. If You Withdraw Funds, Reload the Account

Lastly on how to create an emergency fund in Kenya, do not withdraw money from your emergency account without refunding it. You will return to the starting point if you keep withdrawing the money.

By building your account balance as before, you can plan for emergencies that might crop up tomorrow. Also, you can improve your saving habits if you reload your account balance after each withdrawal.