Capital Club

These are funds that every investor should have:

1. An Emergency Fund
2. A Sinking Fund
3. A Run Away Fund

Let’s dive in:

1. An Emergency fund.

A set amount of money that covers your daily expenses for a certain period of time.
It should cover your daily *normal* expenses for a period of 3-6 months.

However, if you have only one source of income or you have other people who depend on your income, it’s wise to have a fund that can cover you for 9-12 months.

In the wilderness, having more water is better than having less water.

It’s importance:

1. Act’s as a back-up in case you lose your main source of income.

2. Helps you tackle financial emergencies without taking emergency loans.

3. Helps you to avoid selling off your long term assets when you are faced by an emergency.

Where to create an emergency fund:

Ideally, this should be done in a savings account where you can easily access the money.

A Money Market Fund is an ideal place to stack your emergency fund as it has great features suited for this.

These are:

– Your money will be earning interest above inflation rate.

– You can access your money within 2-3 days

– They are low risk avenues. You can hardly lose your money in a MMF.

2/ A sinking Fund

A sinking fund is money set aside for specific upcoming expenses.

These are expenses that are to be met in the near future.

These expenses include:
– School fees
– Purchase of a car
– Car repairs/maintenance
– Saving for vacation
– Holiday travel
– Insurance premiums

For a sinking fund to serve it’s purpose well:

You should have:

– A known upcoming expense

– Assigned timeline

You then include the sinking fund to your budget so that you can allocate resources to it from your income.

What’s the difference between an emergency fund and a sinking fund?

While an emergency fund is for unknown and unexpected expenses,

A sinking fund is meant to cater for known and expected expenses within a defined timeline.

3/ A Run Away Fund

If you lost your job today, for how long can you maintain your current lifestyle without making any extra income?

The runaway fund is the combination of your savings and investments.

It helps you determine how long you can go without making any extra income in case anything happens and job prospects dry up.

Emergency fund + sinking fund + savings + investments = Run Away Fund

If you stop working today, your run away fund is how much time you have until you run out of money.

It’s how many months you’d be able to afford without having any income.

I hope to see you at the top!