By: Brendan Dale
We all have unexpected expenses that somehow pop up at the worst time possible. Imagine the insurance excess you need to pay after your burst geyser, or the sudden visit to the ER which isn’t covered by your medical aid. There are many examples, but it should suffice to say that life throws financial challenges at us and it is really important to have money available for these unexpected things.
What count as emergencies?
As this is your savings goal, you get to decide what the money can be used for. Generally speaking though, one should keep an emergency fund for any time that you absolutely need to spend money on something that is not catered for by your normal savings and budget. Events which are unplanned for and unexpected. Your annual car service or child’s school outing should not be considered emergencies but medical issues, car breakdown or stolen phone could be considered emergencies.
Take time to think about this and make a list of what you consider emergencies.
How much do you need?
This will depend entirely on your own circumstances. Whether you’re married or not, have children, rent accommodation or own a house. The easiest way to calculate a fair figure of savings you should have for emergencies is to base it on the past 6 months. Go through your bank statement and credit card statement and look at expenses that you incurred that were absolutely essential, but not planned for.
Whilst looking at these details also consider how you could better plan for things, especially if they are known events.
Your emergency fund can start at R2,000 – R5,000 and as you learn to budget and plan better you can adjust this accordingly.
Setting up your savings account
There are several options of what type of account to use. Important factors are:
- the availability & accessibility of your money; imagine being admitted to the ER at 2am and needing R2,500 cash
- the interest you earn; obviously the more the better
- account fees; be sure to know the exact monthly costs of your account and try as far as possible to earn more interest than what the fees are
Research the options available at your own bank and don’t be afraid to look at other banks too.