How to Start a Successful Side Hustle in 2020
Author: Renée Kapuku, Creative Digital Programmes Manager, Supa Network | 3 mins read
This article was originally written on Medium
Global pandemic aside, ensuring you have some form of coverage in the midst of a crisis can be key in maintaining yourself and your family if something does arise. We could all do with a buffer – regardless of what our current income situation is – to help us feel a bit more secure with our finances.
An emergency fund is a great way to not only have some extra cash in case of an emergency but practice the habit of saving for very specific and defined goals.
Define an emergency
If you don’t define what an emergency is for you, you won’t be intentional when it comes to setting aside money for the emergency fund.
What is an emergency to you? For instance, an emergency could range from having enough money to keep your essentials and bills covered on he event that you were made redundant for a specific period of time, or in the event that an unforeseen accident lands yourself or a family member in the hospital.
It could be for less life-threatening emergencies, like having a fund to pay off credit card debt or cover broken pieces of your belongings if you fail to have insurance.
Either way, note down what you would like your emergency fund to cover.
Always pay yourself first
Make it a priority to pay yourself first – that means getting into the habit of setting aside an amount of your income to your emergency funds before paying off everything else.
This is a tip I learned from George Clason’s The Richest Man in Babylon, a classic text when it comes to financial management. Amidst other essential lessons, the book delves deep into the principles of setting aside some money first before paying off bills and essentials. This may come across as a shock to some of you who have been paying off your bills the moment you receive income. But, if you’re really trying to build an effective emergency fund, you need to weight it higher on your list of priorities.
It’s a great practice to pay yourself first because it means your savings become more of a priority to you, and factoring them in with your expenses and your bills means you aren’t short-changing yourself and only giving yourself the leftovers of whatever income you earn in a month. It’s more a psychological technique, but a highly effective one.
Save based on percentage, not an amount
Many people often save a specific amount, or they aim for a ballpark figure to deposit into their savings each month. However, if you don’t earn the same amount of money each month, if you’re a freelancer, or if you have some kind of financial volatility, it may not always be easy to save a specific amount of money consistently every month.
A more effective way of saving which accounts for income volatility is saving based on a percentage. Whatever you earn in a month, choose a fixed percentage and deposit that into your savings. For example, I like to save 30% of my income each month. From that 30%, half of that is deposited into my emergency fund.
That means irrespective of whether my income increases or decreases, that’s the fixed percentage of income that will go towards my emergency fund. It takes off the pressure and adjusts for changes, whilst still ensuring minimum payments are made to your savings.
Financial freedom can only really be built by starting with the basics. Investments, compound interest, and security can only be made possible once you’ve secured some level of a financial safety net for yourself and your loved ones. Try out some of these tips and see if you can grow an emergency fund that can genuinely cover you in the face of whatever life may throw at you.