EMERGENCY AND CONTIGNENCY

In the previous posts on finance, we have spoken about goal setting and budgets, and I certainly hope you did both your goals for 2023, and January, and that you did your budget for both as well.  

When we start living by our budgets it is a learning process.  At first, our cost estimate may be too low and we have too high expectations about our income.  However, if we have good data, and, or if we are patient and work our budget consciously, reviewing every week and going through the whole process every month, we do become better at it, and within a few months, our budgets become fairly accurate. 

When we do feel we have a good understanding of our financial situation, then it’s time to start controlling the budget.  That is, to systematically cut expenses where we can, and work on ways to increase income and find additional income streams. 

Now, you feel everything is going well, the budget is under control, you are achieving your goals, and starting to manage your expenses in a way you have never done before.  Then an EMERGENCY happens.

An emergency is any unforeseen event that impacts your budget negatively.  For example, your car breaks down, your child becomes sick, or any other surprise.  And if you are not ready for them, the EMERGENCIES will upset your budget, throw you off track, and set you back on your goals.

Emergencies may happen at any moment, so we must be prepared for them.  The way to prepare for an emergency is by having separate funds to deal with the situation.  There are two kinds of funds we need to have.  

1. Emergency fund:  This should be about 2.5% of your income.  This is to deal with small unforeseen expenses at the moment when we face them.
2. Contingency fund:  This is a bigger fund.  It should be equivalent to 3-6 months of income and is only used in the extreme case we find ourselves out of work for a longer period or some major, prolonged situation that adversely affects our ability to generate income.

We will be talking more about finances and planning so, stand by and follow Agri Project Africa for more posts like this and inspiring agricultural stories and information.