Anyone who has had to unexpectedly fork out money for major car repairs or who has suddenly lost their job will know the stress this can cause. Financial crises are, however, a fact of life and according to Neil Thompson, Head of Product and Customer Value Proposition at African Bank, being unprepared for these can have long-term effects.
Good money management includes saving money as an investment and saving money separately as a financial safety net for emergencies, he explains. “A high interest savings account is the best place to save for emergencies. Make sure, however, you only use this money when absolutely necessary.”
So, what is an emergency?
- Unforeseen medical bills not covered by your medical aid.
- Car breakdown or accident.
- Major home repairs, like a leaking roof.
- Having to stay off work to care for a sick family member.
- Funeral expenses.
What is not an emergency?
- Aesthetic surgery, like a facelift.
- Replacing the tyres on your car.
- A holiday cruise because the special offer if too good to pass up.
- Replacing all your curtains with blinds.
- Buying a new winter wardrobe.
- Throwing a lavish birthday bash and finding you haven’t got enough to pay the band.
“Finding yourself in a real emergency without the resources to mitigate the effects can be disastrous,” Thompson says. “It is important to create a financial safety net; a lifeline to help you when you need it most.
“Many people find themselves stranded financially with no option but to borrow money when a crisis hits. Oftentimes too, they will say their income is too low to allow them to have saved money for an emergency.”
“The reality is though, in life it is not a case of if but when an emergency will happen that will stretch your finances. The only defence is to have an emergency safety net in the bank.”
It all starts with saving money each month and developing good saving habits, Thompson explains. And, he adds, it is not as difficult as people think.
Ultimately, a good emergency fund has three to six months’ living expenses set aside and is earning a high rate of interest each month. While this may sound like a lot, it is nothing more than small regular contributions each month.
African Bank has helped thousands of customers build a nest egg, many from very humble beginnings.
“Many people say they earn too little to save something every month. The good news is that is completely possible to save money, regardless of how much or little you earn. Remember, you are in control of your money and can make good or bad decisions,” Thompson says.
His philosophy is ‘pay yourself first’. This means that the minute you get paid, put a portion of that hard-earned money into your savings account. Better still, set up an automatic transfer – you won’t even notice the money has come off and then there is no excuse for not having boosted your savings account.
“It is easy to open a savings account and even easier to become a master at saving money,” Thompson says. “There is real power in knowing you have enough money saved to take care of an emergency when it happens. In fact, one of your loved ones’ lives could depend on this. A financial safety net provides peace of mind.”