There are two funds that every investor should have.
1/ An Emergency Fund
2/ A Sinking Fund
Here's what they are and how to create themππ
1/ An Emergency Fund
2/ A Sinking Fund
Here's what they are and how to create themππ
1/ An Emergency fund.
What is it?
This is a set amount of money that covers your daily expenses for a certain period of time.
It should cover your daily *normal* expenses for a period of at least 6 months.
What is it?
This is a set amount of money that covers your daily expenses for a certain period of time.
It should cover your daily *normal* expenses for a period of at least 6 months.
However, if you have only one source of income or you have other people who depend on your income, it's wise to have a fund that can cover you for 9-12 months.
In the wilderness, having more water is better than having less water.
In the wilderness, having more water is better than having less water.
Why is it important?
1/ It act's as a back-up in case you lose your main source of income.
2/ It helps you tackle financial emergencies without taking emergency loans.
3/ It helps you to avoid selling off your long term assets when you are faced by an emergency
1/ It act's as a back-up in case you lose your main source of income.
2/ It helps you tackle financial emergencies without taking emergency loans.
3/ It helps you to avoid selling off your long term assets when you are faced by an emergency
Where should you create an emergency fund?
Ideally, this should be done in a savings account where you can easily access the money.
A Money Market Fund is an ideal place to stack your emergency fund as it has great features suited for this.
Ideally, this should be done in a savings account where you can easily access the money.
A Money Market Fund is an ideal place to stack your emergency fund as it has great features suited for this.
These features are:
- Your money will be earning interest above inflation rate.
- You can access your money within 2-3 days
- They are low risk avenues. You can hardly lose your money in a MMF.
Only when it is mismanaged can you lose your money.
- Your money will be earning interest above inflation rate.
- You can access your money within 2-3 days
- They are low risk avenues. You can hardly lose your money in a MMF.
Only when it is mismanaged can you lose your money.
2/ A sinking Fund
A sinking fund is money set aside for specific upcoming expenses.
These are expenses that are to be met in the near future.
A sinking fund is money set aside for specific upcoming expenses.
These are expenses that are to be met in the near future.
These expenses include:
- School fees
- Purchase of a car
- Car repairs/maintenance
- Saving for vacation
- Holiday travel
- Insurance premiums
- School fees
- Purchase of a car
- Car repairs/maintenance
- Saving for vacation
- Holiday travel
- Insurance premiums
For a sinking fund to serve it's purpose well:
You should have:
- A known upcoming expense
- Assigned timeline
You then include the sinking fund to your budget so that you can allocate resources to it from your income.
You should have:
- A known upcoming expense
- Assigned timeline
You then include the sinking fund to your budget so that you can allocate resources to it from your income.
What's the difference between an emergency fund and a sinking fund?
While an emergency fund is for unknown and unexpected expenses,
A sinking fund is meant to cater for known and expected expenses within a defined timeline.
While an emergency fund is for unknown and unexpected expenses,
A sinking fund is meant to cater for known and expected expenses within a defined timeline.
Where do you save for a sinking fund.
Like we have seen above, a Money Market Fund is the best avenue to save for short term expenses.
However, it's advisable not to keep these accounts together.
Like we have seen above, a Money Market Fund is the best avenue to save for short term expenses.
However, it's advisable not to keep these accounts together.
You may use your sinking fund to cater for an expenses and then get hit by an emergency afterwards.
That's it for the two funds.
If you found this thread useful:
1/ Follow me @kahome_steve for more amazing threads.
2/ Retweet the first tweet so that other people may see it.
That's it for the two funds.
If you found this thread useful:
1/ Follow me @kahome_steve for more amazing threads.
2/ Retweet the first tweet so that other people may see it.
P.S.
My personal finance and Investing Masterclass will be happening this Saturday.
I'll be sharing more on these kind of funds and other personal finance fundamentals.
See the poster below for registration details.
My personal finance and Investing Masterclass will be happening this Saturday.
I'll be sharing more on these kind of funds and other personal finance fundamentals.
See the poster below for registration details.
If you are wondering what to expect from the personal finance and investing Masterclass,
Here's exactly what you will get.ππ
Here's exactly what you will get.ππ
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