Most of us know that we should have some emergency cash stashed away for a rainy day, but how many of us actually do it?
With the COVID-19 pandemic came job losses and salary cuts for many South Africans, and this in turn is shining a very bright light on how critical it is to have money available for when things go wrong.
The recent Old Mutual Savings & Investment Monitor found that 40% of households surveyed would barely be able to cover one month’s expenses should the breadwinners become unemployed.
While an emergency fund can be very useful in times of crisis, it is not only for situations like job losses. Think of all those unexpected day-to-day expenses like medical bills, a burst tyre or an excess payment on stolen or damaged property.
Without an emergency fund, those expenses land up on our credit cards, pushing us further into debt.
There’s no time like the present! Start with that emergency fund straight away ‒ even before you focus on paying off any debt you may have.
Ideally, you should have enough money in your emergency fund to cover your expenses for three to six months. That might seem like a tall order, but try to at least start by putting away R15 000 and build it up slowly when you do get a bonus or have extra cash available.
You need to select an investment account separate from your transactional account that earns a better interest rate and keeps the money separate from the money you access for your day-to-day expenses.
You could keep the money in an investment account which is accessible within 24 hours. This would allow access for an emergency that requires you to pay straight away, but in most cases, we have some time to pay the bill.
In that case, a 7-day notice or even 32-day notice account provides both a higher interest rate and some distance between you and your money. A one-month fixed deposit is also an option as you can roll it over at the end of every month if you do not need the funds.
One of the best options is a flexible fixed deposit where your money is fixed for a period, but you can access some of the funds immediately. This would be ideal for a larger emergency fund of at least R20 000 as half would still be immediately accessible.
If you have built up a substantial fund, you could opt to keep a portion in your home loan’s access bond, but remember to keep your monthly repayments the same, otherwise over time the amount you can access reduces.
Start that emergency fund today so you are better prepared for the next crisis.