“Trouble nuh set like rain”- Jamaican proverb

As I write this article, Jamaica is preparing for the onslaught of Hurricane Dean, one of the biggest storm systems to threaten the island in recent years. All throughout this past weekend, shoppers thronged supermarkets and hardware stores stocking up on essentials that they hoped would last them through the adverse weather.

Although I had done most of my shopping in the week, an important forgotten item forced me to join a long line of last-minute buyers. As I waited patiently, I looked around at trolleys laden with loads of batteries, tarpaulins, bottled water, ice chests, flashlights and expensive storage containers. It occurred to me that unfortunately for most consumers, Dean was making his grand entrance the week before most people got paid.

I made a mental tally of the value of all the goods, and realized that even though disaster was looming, the retailers could be quite satisfied with their returns. The big problem was: how many of these shoppers could really afford this emergency? Where were they getting all this money from? Had they maxed out the credit cards that they already were having difficulties paying off? Would a lot of people be unable to pay for school fees in September?

Although we know that we should prepare, are our bank accounts really ready for emergencies?

If you are among the many that had to raid investments that were intended for planned financial goals, or pull funds from accounts that were supposed to pay other bills, or worse, if you didn’t even have enough for the extra shopping, then the need for an emergency account would have hit you with a hurricane-force impact.

Yes, this is exactly the reason why financial experts advise persons to put aside funds for ‘rainy-day’ savings, so that you will have enough money to deal with emergencies!

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Even if you have already depleted your bank account to deal with this hurricane, you can still make plans to start an emergency account for future disasters. Whether they are induced by nature, or arise from job loss or illness, emergencies can have a less devastating impact on your finances if you make a plan to save a little over time to cover you in challenging times.

How do you get started with building your rainy-day account?

The first step is to find out how much it would cost to pay for your important monthly expenses. Add up all your basic needs- food, utilities, rent or mortgage, transportation, and children’s expenses. Don’t include any non-essential spending like the hairdresser or entertainment. Most advisors recommend that you save at least three to six months of your necessary expenses for emergency needs. For example, if your unavoidable bills totaled J$30,000 and you wanted to have three months’ emergency money, then you would aim for J$90,000 in your rainy-day account.

If you are starting from zero to establish the emergency account, the next step is to make a plan how you are going to save up to attain the targeted amount. As with any money goal, it’s really best to get advice from a financial planning expert who would show you how long it would take you to reach your target, given how much you can save periodically, and the prevailing interest rates. You can also check on the internet to find a savings calculator that can assist you with your planning.

Here’s a worked example of what it would take to fund a rainy-day account: If you wanted to reach a target of J$90,000 in two years’ time, you would have to invest about J$3,600 per month at an after-tax interest rate of 6% per annum, compounded monthly, to achieve your goal. However, if you wanted to have this account ready for next year’s hurricane season, you would need to invest about J$9,000 monthly. Try to save in a money market investment account instead of a regular bank account, to take advantage of higher interest rates.

However, as the Jamaican proverb says perfectly, sometimes emergencies don’t warn you when they are going to strike. It’s really best to fast-track your rainy-day account by looking for additional ways to boost your savings. Some possibilities include using the proceeds of a partner draw, trying out network marketing opportunities to supplement your income, or temporarily cutting back on some non-essential spending until you have achieved your emergency savings goal.