With rising costs and increases in interest rates, many South Africans won’t have any extra money to take care of unexpected expenses.
However, if they have an emergency fund they can use that money to take care of that expense.
An emergency fund will allow people to be prepared for unforeseen circumstances or unfortunate events rather than letting them fall into debt when an unexpected situation happens.
According to Katlego Gaborone, a financial planner at Momentum, people need to have at least three months’ salary saved up in an emergency fund.
Tyrone Lowther, head of Budget Insurance recommends that people have three to six months’ worth of expenses saved up in their emergency fund.
The first step in starting an emergency fund is to review your bank statements and monitor expenses to see how to cut down on spending. Whatever money you save after reducing spending can be put towards an emergency fund.
People should also take a closer look at their household budgets and assess where they can free up some extra cash to put away in an emergency fund.
Emily Gray, a business analyst at Allan Gray, said that she has a monthly debit order set up for her emergency fund, which ensures that she saves consistently.
Gray said: “I also try to increase the allocation slightly each year.”
People may find it difficult to start saving towards an emergency fund due to rising costs, however, they need to remember that they can start small and slowly increase their contribution.
Lowther said that people can start making small contributions to their emergency fund and then slowly increase contributions.
“Stay committed to your emergency fund and don’t withdraw anything from this fund unless it’s a crisis,” Lowther said.
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