Make sure you have money for emergencies in the future

The Covid-19 lockdown has been an important time of reflection for the world, with many lessons emerging to make people give pause to what is really important in life.

Neil Thompson, Head of Product and Customer Value Proposition at African Bank, says the way we view money, spending and saving is definitely among the top five lessons from lockdown.

“People are spending with caution because tomorrow is uncertain. This uncertainty extends to the South African and global economy, which undoubtedly has a long road to recovery ahead,” Thompson says.

He believes people who have an emergency savings fund will be better positioned to ride out the storm than those who do not.

“It is anticipated that many people have or will in the coming months suffer partial or complete loss of income. An emergency savings fund can help you look forward to the future without worrying about unexpected expenses, such as those which may occur as the result of a job loss,” says Thompson.

How much should you put into an emergency fund each month? According to Thompson, it is wise to save at least six months’ worth of net living expenses in an emergency fund.

“This may sound like a lot of money, but you will be surprised how quickly your dedication to saving each month will be rewarded. Remember to put your savings into a high interest bearing savings account,” he says.

5 ways to kick-start an emergency savings fund

  1. Stop buying non-essentials and spending on luxuries, like eating out every day. Keep track of your spending and you will soon realise how much you spend unnecessarily.
  2. Get rid of debt, starting with the biggest debts. The money you used to put towards debt can go directly into your emergency fund and grow with interest year after year.
  3. Start budgeting. A budget helps you manage your money, control your spending, save more money, pay off debt or stay out of debt. List your income, add up your expenses, list your net income, adjust your expenses and then track your spending. Without an accurate picture of what you earn and what you spend, you can easily rely on credit cards and loans to pay your bills. If you already have a budget, now’s a good time to update it.
  4. Take note of things which could leave you high and dry financially – car repairs, a medical emergency, a big home repair your insurance does not cover, like a burst geyser which damages your floors. And, importantly, consider your retirement.
  5. Spend more sensibly. Get the whole family involved and make good financial decisions together. After all, everyone will be affected if both parents lose their jobs and there is no form of an emergency money plan to keep the family afloat.

Recognising the dire financial situation millions of people around the world are facing due to Covid-19, Thompson concludes that it is never too late to start an emergency savings account.

“No matter how hard it may seem to save money each month, you need an emergency nest egg to carry your family through tough economic times when there is not enough income to cover expenses. Learning more about this type of fund is a good motivator to start saving money if you have not already done so.”