Covid 19: How an Emergency Fund Could Have Helped You

This article contains:

1. What is an emergency fund?
2. Data showing the connection between Covid 19 and financial hardship.
3. How an emergency fund could have helped during the Covid 19 pandemic
4. Preparing for the next Covid 19
5. How to open an emergency fund now

Why are we talking about this?

The COVID-19 pandemic has had a major impact on individuals and families around the world, physically health-wise and also in terms of their financial health. This is no different for Nigerians. The COVID-19 pandemic has hit harder than anyone could have expected and millions have lost their jobs or experienced a reduction in income, leaving them struggling to make ends meet. But not everyone is facing the same struggles. Some Nigerians were prepared for the unexpected financial downturn, thanks to their emergency fund. This article explores how having an emergency fund during the pandemic could have meant the difference between life and death for most Nigerians and what you should learn from this.

What is an emergency fund?

An emergency fund is a sum of money set aside to cover unexpected expenses or financial emergencies. It provides a safety net that can help you pay your bills and meet your financial obligations in case of job loss or income reduction.

For those with an emergency fund, the pandemic has been difficult, but manageable. Research shows that 40% of people who had emergency funds accessed them during the pandemic, 73% used more than half of their funds and 29% used up all they had in their emergency fund. 

But for some without an emergency fund, the pandemic has been a nightmare. Some have had to borrow money or rely on family to cover their expenses, leaving them with high-interest debt that will be difficult, if not impossible, to pay off. They have also had to cut back on their spending, which has put a strain on their relationships and their quality of life.

If the pandemic affected you personally perhaps through a personal loss of job, income, or family; then you probably know what I am talking about already. But if it did not, here is some data to show the severity of the unexpected.

Some data…

According to data from the International Labor Organization, the COVID-19 pandemic has had a significant impact on employment in Africa. The data shows that the unemployment rate in Africa increased from 7.3% in 2019 to 8.0% in 2020, representing a 10% increase. This increase in unemployment has put many individuals and families at risk of financial hardship.

Bringing it home ??

The unemployment rate in Nigeria increased from 23.1% in 2019 to 27.1% in 2020, according to data from the National Bureau of Statistics. This represents an increase of nearly 17% and is the highest unemployment rate in the country since at least 2010.

It gets worse. The pandemic has disproportionately impacted young people in Nigeria, with the unemployment rate for individuals aged 15-24 reaching 39.4% in 2020. This is significantly higher than the overall unemployment rate and highlights the impact of the pandemic on the country’s youth.

The pandemic has also had a significant impact on informal workers in Nigeria, with the informal sector accounting for nearly 80% of employment in the country. Many informal workers, such as street vendors and small business owners, have lost their livelihoods due to the pandemic and have been unable to find new employment.

How an emergency fund could have helped during the Covid 19 pandemic

One of the best things you can do for yourself is open an emergency fund now. You can never tell when the unexpected will happen. It does not even have to be a pandemic. It could be a job loss, a robbery on the highway that results in the loss of your gadgets, or the death of a family member. No one prays for these things but life is full of surprises.

The world was surprised by the pandemic in 2020. Here is how an emergency fund could have helped then:

1. It could have provided a safety net in case you lost your job or experienced a reduction in income.

With an emergency fund, you would have had access to funds to cover your expenses and maintain your standard of living, even if you lost your income. The unemployment rate in Nigeria experienced an increase of nearly 17% – maybe this affected you. This shows the impact that the pandemic has had on employment in the country. Having a safety net would have helped you if you lost your job.

2. It could have provided peace of mind.

Knowing that you had money set aside for unexpected expenses could have reduced your stress and anxiety, and could have helped you to sleep better at night. It could have also provided a sense of security and could have helped you to feel more in control of your financial situation.

3. It could have helped you to avoid high-interest debt.

If you didn’t have an emergency fund and had to borrow money to cover your expenses, you could have ended up taking on high-interest debt. This could have been difficult to pay off and could have had a negative impact on your long-term financial health. An emergency fund would have provided a source of funds that you could have accessed without having to take on additional debt.

4. It could have helped you to reach your financial goals.

By setting aside money for unexpected expenses, you could have freed up more of your income to save for retirement, pay off debt, or invest in other financial opportunities. This could have helped you to achieve your long-term financial goals and improve your overall financial health.

Preparing for the next Covid 19

As the COVID-19 pandemic has shown, emergencies can strike at any time, without warning. This is why it is important to be prepared for the next emergency by opening an emergency fund.

Having an emergency fund is not about being pessimistic or expecting the worst, as we have mentioned earlier. Rather, it is about being prepared for the unexpected and being able to manage any financial challenges that may arise. It is about being proactive and taking control of your financial situation, rather than reacting to events as they happen.

How to open an emergency fund now

Opening an emergency fund is a simple and straightforward process. Start by setting a goal for how much money you want to save in your emergency fund. Then, make a plan to save a certain amount of money each month until you reach your goal. Consider setting up automatic transfers from your checking account to your savings account to make the process easier.

Once you have reached your goal, continue to save on a regular basis to maintain your emergency fund. This will provide a buffer against any financial challenges that may arise in the future, and will help you to feel more secure and less vulnerable.

Fortunately, we have an automated process for all these on the Cowrywise app. You can open your emergency fund here.

Conclusion

Preparing for the next emergency by opening an emergency fund is an important step that you can take to protect your financial health. It is not about being pessimistic, but being proactive and prepared for the unexpected. By setting a goal, making a plan, and saving on a regular basis, you can stay ahead of life, maintain peace of mind and have financial security.