An emergency fund serves as a crucial financial safety net, enabling you to cover unexpected expenses during a financial crisis, such as medical bills, car repairs, or job loss
"Financial emergencies and unforeseen expenses can happen anytime. This requires you to have a plan in place to help you navigate these unfortunate life experiences," Ilse Smuts, Business Development Head, FNB Retail Cash Investments said.
Sarah Nicholson, operations manager of JustMoney.co.za said that without savings, an unforeseen expense can derail your budget and push you into debt.
"On the other hand, if your car breaks down and you need R8,000 for urgent repairs, an emergency fund allows you to cover the cost immediately. Similarly, if you lose your job, savings can keep you afloat while you search for new work," Nicholson said.
"An emergency fund provides financial security, reduces stress, and helps you stay in control of your money. Unexpected setbacks don’t turn into financial crises."
Smuts and Nicholson share their strategies to help you with your emergency fund:
Start small
According to Nicholson, you need to be consistent, even if you put away only R50 or R100 per month.
Automate it
Have a scheduled transfer for emergency savings from the account in which your salary is paid set to ensure that you have a buffer for any emergencies plus you can meet your monthly savings goals, according to Smuts.
Boost your income
Nicholson said that you should consider starting a side hustle like online tutoring; or setting up a small business, selling unwanted items.
Discounts
Retailers have special offers and loyalty programmes that can help you save money. These can help you with your emergency fund, according to Nicholson.
Review
"Assess where and how you had to utilise your emergency funds and try allocating more should there be a need. This will not only help you beef up your savings but help ensure you avoid relying on debt in cases of a financial emergency," Smuts said.
Mapalo Makhu, personal finance expert and author has also shared her top emergency fund tips.
Know your numbers
For it to be a fully funded emergency fund, ask yourself what that number is for you. The benchmark is that you need to save at least three to six months' worth of your expenses. If your expenses are R10,000 every single month, you should at three months of that which is R30,000.
That is not something that you will achieve overnight but it is something that you can build on over time.
Create a budget
Consider your current spending and assess how much you can allocate to your emergency fund. Is there any flexibility in your budget that allows you to cut back on unnecessary expenses to boost your savings?"
Financial windfall
Make sure that any windfall that you receive, such as a bonus or a tax refund, is put towards the emergency fund.
Separate account
Do not keep the emergency fund in the same account that you transact with when you go shopping and make sure that it is a completely different account.
For example, Makhu puts her emergency fund in a 32-day account because if she sees the money then she will spend it.
@mapalomakhu How to build an emergency fund #personalfinance #moneytips #emergencyfunds #savings ♬ original sound - Mapalo Makhu
IOL Business