Emergency Fund: Practical Steps to Build Financial Protection That Covers You

Imagine you suddenly need a large sum to cover an unexpected injury or a home repair. If you rely on loans or credit cards, you’ll quickly notice the financial gap. That’s why it’s always advised to create an emergency fund that gives you peace of mind when any unplanned emergency occurs.

What is an emergency fund and why can’t you do without it?

An emergency fund is a pool of money set aside to cover unexpected expenses. The idea isn’t just saving—it’s building a safety wall that stops you from falling into a debt spiral when any crisis hits.

Often, lacking an emergency fund leads to rushed financial decisions that cause losses, such as selling assets at a discount or taking on debt—and this is what we want to avoid.

Step one: Calculate the right fund size for you

The general rule says the fund should cover three to six months of your essential expenses. But no one has the same situation, so we need to adjust the formula based on:

• Your steady monthly income (salary, freelance earnings, etc.).
• Your essential expenses: housing, food, transport, bills, and any fixed loans.
• Job stability: If your job is stable, you can aim for the lower end (three months). If you’re self-employed or in a volatile sector, it’s better to aim for six months.

Practical example: If your average monthly expenses are 3,000 riyals, your fund target ranges from 9,000 to 18,000 riyals.

Step two: Choose the right tool to build the fund

Not every bank account suits an emergency fund. The best option should be:

• Instantly accessible with no withdrawal fees.
• Earn a modest return (a low but fixed-interest savings account).
• Kept separate from your daily spending accounts to reduce accidental use.

If you prefer digital tools, you can use apps like Naqd or Mahfaza that let you create “pots” inside the app, making tracking easier.

Step three: Integrate the fund into your personal accounting system

Here begins the shift to organised personal accounting. Use whichever tool you choose to record every deposit or withdrawal from the fund. You don’t need a complex system—a simple table in Google Sheets or a notes app is enough.

Example of a simple table:

• Transaction date.
• Amount.
• Reason (e.g., salary deposit, withdrawal for car repair).
• Remaining balance.

Recording every move creates transparency, making the fund part of your daily financial routine.

Step four: Set up a regular deposit mechanism

To reach your fund goal without feeling pressured, set a fixed percentage of your salary to be automatically transferred to the fund account at the start of each month. A 10% rate is a good starting point; you can adjust it based on your capacity.

If your income is irregular, use the rule: “Save up to 20% of any payment you receive.” The idea is to make deposits usually automatic, to avoid forgetting or being tempted to use the money for other purposes.

Step five: Review the fund every three months

Regular reviews help you:

• Assess whether the fund size is still sufficient.
• Update your essential expenses if they’ve changed (e.g., you moved to a smaller flat).
• Adjust the deposit percentage if your income has gone up or down.

During the review, be sure to document any unexpected withdrawal so you can analyse the cause and avoid repeating it.

Practical tips to strengthen the fund

1. Remove temptations: If you have a savings account that allows instant withdrawal via your bank’s app, try to disable or cancel instant access. Use an account you can only access via traditional bank transfer.

2. Use “spending rules”: Set a rule not to use the fund unless all three conditions are met: emergency, unexpected, and cannot be postponed.

3. Benefit from rewards: When you hit your fund target (e.g., 9,000 riyals), reward yourself with a small amount or a simple treat. The reward motivates continuation without jeopardising the fund.

4. Try multiple funds: If you manage several emergency needs (home maintenance, health reserve, education emergencies), you can create “sub-funds” inside the app. Each sub-fund has a clear goal, making tracking easier.

How the fund affects your daily financial decisions

When you know you have a fund covering emergencies, your feeling shifts from anxiety to confidence. This reflects in your decisions—for example, you might choose a long-term investment because you know the fund will protect you from any sudden market dip.

Having the fund also reduces the need for high-interest loans, thus lowering your debt burden and increasing your capacity for genuine saving.

In conclusion: the fund isn’t just a number in a table

It’s a real tool for financial security. By weaving it into your daily accounting, it becomes an inseparable part of your routine, and you regain control of your money every time you face an unexpected situation.

Start today by calculating your fund size, opening a dedicated account, and recording your first deposit. The first step may seem simple, but it carries financial security that could change your future.