No-one’s immune to bad luck… and when it has serious financial consequences, you want to make sure that you’re prepared. Here’s how to save an emergency fund.
No-one’s immune to bad luck… and when it has serious financial consequences, you want to make sure that you’re prepared. You can easily live without a lost camera, but lose your salary and life gets a whole lot harder. Having an emergency fund to cover your expenses for a couple of months while you look for a new job, can prevent major stress and hardship and lessen the blow on the course of your life. An emergency stash can also save the day when it comes to those large unplanned expenses like medical bills, or car and house costs.
Unfortunately, our SA saving statistics don’t imply a nation of people well prepared for a rainy day. According to The Mail and Guardian*, the average household saving per month in December 2017 was a mere 0.2%. But worse, Trading Economics°, an online platform providing historical economic data, noted that by the fourth quarter of 2018, South Africa had a negative household saving rate – on average, we were spending more than we earned.
Taking control and creating a financial safety net for yourself is well worth the peace of mind it brings – here’s how:
- Set a realistic goal
The advice that most financial advisers give is to set a goal of between three to six times the amount of your monthly income. So why not start with a goal of three and then think bigger once you get there?
- Search for saving opportunities
Next, detail your monthly spend, from rent to your Monday morning coffee treat, and look at where you can save. Drink water not juice, pack lunch rather than buy it, eat more vegetarian meals, choose free entertainment, stay away from the malls and don’t carry spending money – find what works for you. It’s going to take some time, but if you can manage to save 13% of your income each month, in two years’ time you’ll have ticked off your first goal!
- Keep savings separate, but in reach
Whatever percentage per month you decide on, organise for that amount to be transferred automatically to a different account from your spending money, as soon as your salary arrives – out of sight, out of mind. Just make sure that your saved money is easily available, as almost every emergency involves urgency. Once you have three months’ worth of salary saved, you could look at putting the next three in a higher interest, access-with-notice account.
- Define what constitutes an emergency
This is where you have to be strict with yourself and make a list of what you deem to be an emergency – temporary loss of income, medical bills, home repairs (not renovations!), or any legal payments. If it’s not on the list, don’t use your fund!
It’s easy to feel that there’s no room in your budget for saving. But you need to start somewhere – no matter how small the percentage. You will NEVER regret saving up an emergency fund and once you’ve done it, don’t stop saving. Continue with it and before you know it, you’re that person with an emergency fund AND some savings… you’re also less stressed, happier and closer to realising your dreams.
Sources:
*https://mg.co.za/article/2018-02-23-00-what-are-the-savings-statistics-in-south-africa
°https://tradingeconomics.com/south-africa/personal-savings
https://www.investopedia.com/ask/answers/09/emergency-fund.asp
https://www.investopedia.com/financial-edge/0812/why-an-emergency-fund-is-important.aspx
https://www.saveandinvest.org/military-everyday-finances/start-emergency-fund
https://www.sanlam.co.za/personal/financialplanning/Pages/emergency-fund.aspx
