Why You Need ‘Screw You!’ Money

At some point in your life it’s likely that you’ve either worked at a job you hated or worked for a boss you didn’t like. If you’re as unlucky as I am, then you’ve experienced both scenarios at the same time!  

 

“Well, why didn’t you just quit?”

 

Believe me the thought crossed my mind several times, but I couldn't do it for two reasons:

  • Firstly, it had taken me quite a some time to get that job, so the idea of going through the whole job search process again was quite unappealing.
  • Secondly, and most importantly, my financial state was dreadful. I lived a certain lifestyle and my salary was crucial if I was to maintain it. It was so bad that I couldn’t risk being jobless for even one month.

I couldn’t just walk up to my boss and say “Screw you! I quit!”, because I didn’t have “Screw You” Money.

 

“What exactly is 'Screw You' Money?”

 

“Screw You” money simply refers to the accumulated sum of 3-6 months of your monthly net income (your net income is the amount that you receive as earnings after tax). ‘Screw You’ Money is more commonly referred to as an Emergency Fund.

This emergency fund should be sent to a separate, easily accessible account and stored away to safeguard you from any curveballs that life may throw your way.

 

“So why do I need an Emergency Fund?”

 

There are numerous reasons why you should have an Emergency Fund but let’s start with my unfortunate story.

I mentioned that I didn’t like my job and I wasn’t fond of my boss but I didn’t even have up to one month's net income saved up in my emergency fund, so I couldn’t comfortably quit the job. An emergency fund (or ‘Screw You’ money) would have provided me with the option to quit that job and begin my search for a new one without having to worry about how I was going to survive for a couple of months.

An emergency fund acts as a buffer for unexpected situations. Life comes at you fast and is very unpredictable, the least you can do is to be financially prepared for as many scenarios as you can.  Consider the following scenarios:

  • You are suddenly laid off from your job, how will you support yourself or your family?
  • You get in a car accident and suffer a serious injury, how will you pay for the medical expenses?
  • You’re financially dependent on a partner who decides to leave you, how will you cope?

 

 

“Okay, but I heard I could just base my emergency fund on my expenses!”

 

A few people would argue that your emergency fund could be based on your monthly expenses instead of your monthly net income. The problem with basing your emergency fund on your monthly expenses rather than your monthly net income (especially in a country like Nigeria) is that by definition you are only prepared for predictable situations. You are prepared to take care of your monthly expense and nothing more.

Given how unpredictable the economic climate in Nigeria can be, it’s important to protect yourself from unforeseen circumstances. For instance, the recent recession led to a rise in inflation and the price of most things rose dramatically. This caused bag of rice to rise from ₦10,000 to ₦20,000!

If you based your savings on your monthly expenses, your emergency fund would immediately shrink because the price of your expenses would inevitably have gone up.

 

To further explain this point, let’s do some quick math (don’t stop reading, it’ll be quick, I promise): Meet Kemi

 

Kemi (but not really)

 

Kemi earns ₦150,000 a month and her expenses are ₦ 70,000 a month. Kemi decides to build an emergency fund based on 3 months of her expenses, so after 3 months she has ₦210,000 in her emergency fund. The company Kemi works for starts going through some rough times, they decide to downsize and since Kemi is the most recent hire in her department, she gets laid off. To make matters worse, Kemi has a car accident within the same month, suffering a mild injury to her wrist.

Fixing her car costs ₦100,000 and her medical bill costs ₦50,000. Kemi is now left with ₦60,000 in her emergency fund. If Kemi is to maintain her lifestyle (as the Lagos big girl that she is), she has less than one month to find a new job.

 

Now let’s say Kemi decides to base her emergency fund on 3 months of her monthly net income, now she has ₦450,000 in her emergency fund. If the same unfortunate incidents occur, she will be left with ₦300,000 in her emergency fund instead. This means Kemi can now maintain her lifestyle for 4 months while she finds a new job. Basing your emergency fund on your monthly net income is simply more robust to the unpredictability of life (especially in Nigeria). 

 

“Alright I get your point, so how do I know exactly how much to save?”

 

The answer to this question depends on your particular situation; you should consider some factors like your job security, job satisfaction and the job market where you live. The general rule of thumb is to have 3 to 6 months’ worth of monthly net income. The more stable your money and situation is, the less you need in your emergency fund. The riskier your life is, the closer you should have to the 6 month range.

For instance, if you work for a large company, perhaps have done so for a long time and you enjoy your job, then you might feel that your job is safe, and be content with a 3 month emergency fund.

However, if you hate your job and aren’t really confident of getting a new one anytime soon because the job market isn’t great, then I would suggest aiming for a 6 month emergency fund.

The key is to ask yourself what level of security would put your mind at ease, then work towards that figure.

 

Building an emergency fund is an important part of personal finance and it is integral for your peace of mind! Trust me, you'll sleep better at night knowing you are financially prepared for any situation and in case you hate your boss, you know you can always rely on your ‘Screw You!’ Money. 

P.S: Stay tuned for our next article outlining practical steps to help you build your very own emergency fund.

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