In the tough financial times that South Africans are facing, it is important that people start saving towards an emergency fund which can be useful in a financial crisis.
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.
While 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 that people need to take to start their own emergency fund is to review their bank statements and monitor their expenses to see how they can cut down on their spending. Whatever money they save after they cut down on their spending can be put towards their emergency fund.
People should also take a closer 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.
IOL Business