Can you deal with an unexpected car maintenance bill of R5,000? Possibly on the credit card but what about cash? Let’s look at how to save for emergencies.
#MoneyMonday – short to-the-point money thought every Monday to give you motivation, perspective or action for the week.
What is an Emergency Fund?
An emergency fund isn’t simply a savings or investment account, this is money that is saved specifically to deal with unexpected expenses. So the money is intended to be used, we just don’t know when we will have to use it.
It’s best to have it easily accessible as you may need to access it at 2am or in some off circumstances.
Think about the things that have happened over the past year or two that have thrown your budget way off course (presuming that you use a budget – wink) These are unplanned expenses that just happen and which you somehow need to deal with.
- a visit to the emergency ward
- burst geyser
- needing to replace your car battery
- replacing your fridge or washing machine
- losing your phone which wasn’t insured
- lost school blazer
- car problems
- leaking roof
Do you have any sort of savings fund that can help you deal with such events?
How to save for emergencies
1 – Asses your current emergency fund (if any)
How much money do you have available in case of emergency? This is not how much credit your have available on your credit card but rather how much cash you have that can be accessed.
Why do I say not your credit card?
Well you certainly can use your credit card in an emergency but you do need to have the cash to back it up. Imagine the situation you could get yourself into if you have to spend an unexpected R5k on your card this month and in two months time (before you’ve paid it off) another R10k emergency pops up. This can throw you way off course.
2 – Set a realistic goal
Once you’ve seen how much you have, it’s time to set a goal. You may find that you don’t currently have any money set aside in an emergency fund and that’s quite ok; start now.
Life happens and you need to deal with things, but it’s so much easier if you have planned ahead and created a fund for such events. We can’t plan for everything but we can plan for “averages”. On average, how much have you spent on emergencies over the past year?
Your goal needs to be specific to what you can afford, as well as your own personal circumstances. A single person who still lives at home may not need much of a fund whereas a married couple with two little ones would need a larger fund.
It could be an idea to set a goal of R5k – 10k and then assess things going forward.
3 – Create a plan and start working towards it
With a goal in place decide how much you can contribute each month in order to reach your goal relatively quickly. You should keep this money in a separate bank account (or savings pocket) where you can access it, but it’s not too tempting.
It’s not that important in the beginning to decide where to save your money, rather just start!
4 – Be kind to yourself
It’s possible (and unfortunately quite likely) that things will go wrong. Either you’ll slip up on your budget and splurge a bit, or perhaps something comes up and you actually need to use the emergency fund that you have saved so far. This is okay!
There’s no need to get caught up in your plans and be so strict with yourself that you can’t enjoy life. When things happen, simply reassess the situation and change the plan according.
You’ll find that an emergency fund can really help smooth out the bumps when it comes to cash flow and unexpected happenings.
It’s important to be conscious of saving for unplanned expenses and being aware of where you currently spend your money.
It’s not that hard, you’ll figure it out!
More on how to save for emergencies
Take a look at these 3 posts to find out more on Emergency Funds and how to save for emergencies.