Ecsponent shares their top tips on how you can build and maintain your own emergency fund
There’s no doubt that South Africans’ disposable income is under pressure. Many households already struggle to meet monthly expenses, not to mention save due to rising costs and bleak economic conditions. However, even if it seems near impossible, establishing and maintaining an emergency fund is undoubtedly one of the most important things you can do for your finances. Here are some tips to get you started.
What is an emergency fund?
Your emergency fund and savings account are not the same. An emergency fund should only be used for unexpected but important expenses, like unforeseen car repairs or medical expenses. If you have access to emergency cash, you will not be tempted (or forced) to withdraw from your savings or apply for credit to pay for surprise expenses. Not only is it an easy option, but it is also much better for your your future financial well-being.
When to start?
Many South Africans put off saving for emergencies until they have more disposable income available. However, as time goes by, costs will rise and you are unlikely to start.
To overcome your procrastination, start slowly and establish an emergency fund as permanent, important part of your overall portfolio. Put small amounts away regularly and you will soon have enough saved to cover unexpected expenses. No matter the amount, it all adds up.
How do you get going?
Many financial institutions offer solutions to keep your money safe, but accessible, making it easy to start emergency fund today. As a rule of thumb, aim to save and maintain three times your monthly gross income as a financial buffer against the unexpected.
Five easy tips to start your emergency fund:
- Make building an emergency fund a priority in your budget.
- Seek professional help to establish how much you can afford to save towards this fund each month and cut back on some luxury expenses if necessary.
- Set up a debit order to move money into this fund, so that it happens automatically and you are not tempted to change your mind.
- Don’t be tempted to access these funds if not absolutely necessary.
- Stash away a percentage of additional incoming funds such as tax refunds and bonuses.
- If you need to withdraw funds for an emergency, make it a priority to top your fund as soon as you can.