16th July, 2012
We shall devote this week to answering some money questions from the mail box. We are treating two of such questions in this edition. To get your questions featured in this column, send an email to [email protected]. You can also sms it to 07031217797.
What about emergency fund?
I would appreciate it if you could clarify the concept of an Emergency Fund. Someone mentioned the term while we were discussing on personal finance recently. How is it different from saving or investing?
The underlying principle behind the concept of an emergency fund/account is that you should put your house in order before you begin serious investment. Where there is no order, qualitative progress becomes a mirage. Putting your house in order means that you have to first take care of commitments that if unattended to can cause disruptions even when you have gone far into investment. If you owe for instance, it would be nice to make efforts to pay off your debts. It is important to agree with yourself what constitutes an emergency to you. Wedding, for instance, is not an emergency. This should be planned for well ahead.
An emergency fund is meant to provide a cushion against unforeseen developments that sometimes crop up in life. One may lose job. There may be a medical emergency. They come in different shapes. If you do not have something in the kitty to take care of such emergencies, you may be thrown off balance when they happen. However, if you have some fund somewhere, you can make use of this without much problem. You must, however, build it back immediately.
You do not need to stop your investment plan to fund your emergency; it is just advisable that you work out how to put one in place as soon as possible. Personal finance experts say it should be an equivalent of your six month’s salary. That should be the minimum. As your financial fortune improves, you can build up the emergency fund beyond the present level especially since you could still be earning interest on it.
Should I start my housing project now?
Dear A.A., I am in a dilemma and I need your advice urgently. I am a worker with a monthly salary of N75,000. My parents and friends have been putting pressure on me to start a housing project. I had ignored their pressure until now when I am beginning to reflect on their point of view. I am currently looking at buying a land along Lagos-Ibadan Expressway so that I can begin to build gradually. My challenge is that I am not even too sure if my salary is sustainable because my company has been cutting salaries of colleagues although I am not affected. Do you advise that I start the project?
It depends on what you consider a priority. I observe, however, that many people have got their lives upside down. They do what they should do first, last and what they should do last, first. Lasting success cannot result from such lives. I was asked by a newspaper I worked for at a time to cover a voting process in a particular part of the country. In the process, I visited some remote villages there. I noticed that in virtually all the villages, there were sprawling, magnificent buildings not occupied by people but weeds and trees. I was made to understand that the tradition in that part of the country is that if you have not built a big house in the village, you have not “arrived”. Yet, the landlords of these architectural masterpieces live in cities; they may not step into the building more than once a year!
I have encountered individuals who embark on housing projects when they don’t have established sources of income. Invariably, such people truncate their careers, and ultimately, get the housing project abandoned. God is a process being. He is deliberate in everything he does and if we are truly his image, we should act in the same manner. God usually visualises every project he wants to embark on, sees the end from the beginning and carefully activates, in sequence, all activities that would be necessary to accomplish that project. He would do first things first, middle things middle and last things last. In his creative work, we understand that God created light before the sky and sky before the land and land before the vegetation and vegetation before the stars and the moons and the stars before the living creatures and the living creatures before human beings. Think for a moment. Assuming he created living creatures before vegetation or human beings before vegetation and living creatures, what would happen? That would have been a recipe for confusion! And God is not an author of confusion.
Personally, I believe there is wisdom in first establishing a sustainable source of income before embarking on a housing project. When there is cash, a house can be built in less than six months. You may even buy it off those who have built it when you have the cash. It is even unlikely that you would build a befitting house if you embark on it when you have not established your work in the field. There is time for everything. There is time to sit down and build your career and business and there is time to focus on accumulating instruments of pleasures. But, of course, the choice is yours.
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PPPS: Do you have any money questions bothering you? Send it to the money doctor at [email protected]