We all know that feeling when you’re low on cash and an emergency strikes. Feelings of angst and fear come to mind. These emergencies range from unexpected car troubles and hospital bills to house maintenance or even losing your job. Emergency fund savings will be your umbrella on a rainy day and is essential to any household. An established emergency fund can help you out during those hard times or even keep you from falling into a pool of debt. Recent statistics show that even though our country is very diverse, we all have one thing in common – we’re all masters of procrastination when it comes to saving. In a recent survey, 52% of South Africans said that they would not be able to manage an unexpected expense of R10 000 and that they would turn to credits facilities, personal loans or family and friends to get them out of this sort of predicament.
Not only do we delay opening that savings account, we also make excuses for why we are in no position to save. Saving on a monthly basis can be a daunting task for South Africans but setting up an emergency fund doesn’t have to be dreadful and difficult. Start out by reviewing your household’s budget to see how much money you can allocate to an emergency fund on a monthly basis. You don’t need to save thousands of rands per month. Start out small by saving hundred rand every month. Write your monthly contribution towards your emergency fund off as a fixed ‘expense’. Force yourself to save by setting up a debit order that deposits money into your emergency fund on a monthly basis.
There are certain things to consider when choosing where to keep your emergency fund. An emergency fund, as the name suggests, should be immediately available when disaster strikes. However, having immediate access to your emergency fund can lead you into spending temptation. Find out which savings options are available at your current bank as it makes more sense to keep your emergency fund with your current bank. This way, you can minimise delays when transferring money from your emergency fund. If you aren’t satisfied with your current bank’s savings products, take a look at the various savings options that South African banks have to offer. Regardless of which establishment you end up entrusting your savings with, make sure you get the most out of your emergency fund by choosing a savings account that yields the highest possible interest rate. Lastly, choose a savings option that doesn’t charge any fees and doesn’t penalise you for early withdrawals. Make sure you read the fine print before signing anything.
You should also set a goal for your emergency fund. Your goal needs to be realistic and reachable, but try to push yourself to the limit where possible. Let’s say you can contribute one hundred rand per month for an entire year. Within a year, your emergency fund will have a balance of R1200. Your goal needs to exceed this amount. Set a goal of R2000 and challenge yourself to reach that goal. Reach your goal by making additional contributions towards your emergency. You can bank the value of one year’s change, sell unused items in your house or even make extra money on the side. Your ultimate goal should be to have between three to six months of living expenses saved up. This means if your fixed monthly expenses are R5000 per month, you need to have anything between R15 000 and R30 000 saved up.
Some financial advisers recommend building up an emergency fund regardless of your personal debt. Though your debt repayments definitely shouldn’t be neglected, make sure you still make a monthly deposit towards your emergency fund. According to financial journalist, Maya Fisher-French, financial plans to get out of debt are usually derailed because of a crisis. Not having an emergency fund in place will force you into expensive debt like maxing out your credit card or taking out a personal loan.