Emergency Fund: What It Is And How To Create One

September 8, 2022

Written by Dorcas Obenewaa Owusu


Not to be dramatic, but hear me out: so you get to your office on a Monday morning. Looking sharp, dressed to impress, and ready to start the week on a positive note. Your boss unexpectedly summons you for a “quick meeting” and hits you with the news….the company is laying off employees.  You’ve just been fired.

Seems like the week didn’t start well after all. What do you do now? How will you pay the bills? And most importantly, how will you survive without an income until you are back on your feet again?

This scenario is just one out of a million unpleasant situations that can turn your life upside down, and that’s why having an emergency fund is one of the smartest financial decisions you can ever make.

An emergency fund is money you put aside for emergencies or unexpected situations. You can also call it a rainy day fund, or as I like to call it “the backup of backups”.

So why do you need an emergency fund?

By now you probably get the hint that an emergency fund protects you from unexpected expenses. It’s a financial anchor you can rely on when life suddenly throws lemons at you.

This protection also extends to your other savings. If you have enough money to cater for rainy days, you wouldn’t need to use the cash you’ve been saving up for other purposes. Say buying land or starting your own business.

Most importantly, an emergency fund improves your overall quality of life. Think of it like this: 

  1. You won’t borrow and swim in debt in case you get stuck in a financial rut
  2. It will help you make better financial decisions and strengthen your financial security.
  3. Besides the peace of mind, it also gives you the confidence to cope with life’s unexpected events

Creating an emergency fund 

Now the process is exactly like opening a bank account. 

But how much should you save in your emergency fund? While there is no fixed amount that you should save in your emergency fund, most experts believe you should have enough money in your emergency fund to cover at least 3 to 6 months’ worth of living expenses.

However, this is only a rule of thumb. Just do what works for you. If you think three months’ worth of expenses is enough for your emergency, go for it. If having 6 months of monthly expenses gives you the peace of mind to sleep well at night and not start panicking when things go wrong, then by all means do it. 

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In other words, it depends on you and your situation, got it?

 Ok, let’s move on…

Now let’s talk about how to set up an emergency fund…

Start by estimating the cost for critical expenses: These include food, transportation, fuel, rent, utilities and any other essential expenses

Decide how much you want to save: After you’ve figured out how months’ worth of expenses you want to put in your emergency fund, you have to calculate the actual amount of money you need to put away. Review your expenses and budget to figure out how much you need to live on every month and multiply that by the number of months. 

Let me break it down so that you don’t get confused. So let’s say you want to have 6 months worth of expenses saved and from your budget, you realize you spend GHC 5,000 a month. This means your emergency fund has to be GHC 30,000.

Start small: Make it a habit to save small amounts regularly instead of starting with a large sum right away. It could be every week, every two weeks or every month. It’s not about how much you put away every time. It’s about being able to put some money away in your emergency fund regularly and sticking to the schedule.

Automate your savings: Many banks allow you to put standing orders on your account and set up automated payments. Doing this means that when your salary hits your account, the amount of money you have allocated to your emergency funds automatically gets transferred to your emergency account and you don’t have to worry about remembering to move money into your emergency account.

Review your progress regularly: Checking your account once in a while can motivate you to keep saving and also helps you see what you’ve accomplished so far.

Investing in an emergency fund can literally be your lifesaver in times of crisis. And as the saying goes, it’s better to be safe than sorry.


About Mesika

Hey there, my name is Isaac Sesi. I built Mesika to provide free personal finance resources online to help young Ghanaians become smarter about their money.

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1 Comment

  1. Alberta Carsamer

    This is insightful


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