How to Prepare an Emergency Savings Fund
Every single one of is aware that our circumstances can change in the twinkling of an eye. In a matter of seconds we can find ourselves needing cash desperately for unforeseen circumstances and expenses. Are we putting away money for such occasions and how much is enough? Remember that any emergency fund will be little use to you if it is tied up in an account where \notice is required before you can make any withdrawals. Rather have it in a current account.
That Pile of Cash
Craig Graddidge, a certified financial planner and investment specialist from GM Investments defines emergency savings as ‘that pile of cash that you use for emergencies’. You could find yourself in any disaster where you a need extra cash. Disaster happen to us all and we can’t just ignore them or wish them away.
Calamities often need quick intervention in the form of readily available cash. Graddidge is of the opinion that typically, your emergency savings fund should consist of about three to six months of what your current salary is. For some of us, three to six months of saving, equivalent to our income per month, seems almost impossible. In reality, a lot of us do not have any kind of emergency saving.
Emergency Funds at Short Notice
As we get older, and our health fails, we tend to really appreciate and understand the role that having an emergency fund brings. We understand how life can suddenly change. Many people start out with good intentions to create and build wealth for themselves and then unforeseen events happen to disrupt the building of wealth. The fact remains; an emergency fund needs to be available at short notice, not carrying any investments risks and should be able to give you a good or high return.
Towards an Emergency Fund
For having an emergency savings fund, a money market would be a good place to start. A unit trust money market fund allows you to access the money in as little as three or four days. You get better returns than from the bank, and it has the same liquidity. If you are saving with a bank, then you have to offer up your liquidity, but with the money markets, you get both, the liquidity as well as the returns.
There are other quicker options for an emergency fund – you can put your emergency fund into your credit card account so that you have a positive balance on it. The other option is an access bond if you’re a homeowner. You can contribute additional money towards your bond which goes towards paying off the interest outstanding on your home loan. This means your house finance costs you less in the long run. If you have an access bond, this is a good option.
Start Saving Slowly
Low income people can often hardly afford to make it from one salary to the next, but Wayne McCurrie from Momentum compares this to eating an elephant – take one bite at a time. He recommends starting even with R100 or R200 a month, but just start and concentrate on paying off debt as quickly as possible. Certainly, with a financial safety net in place, unexpected events in your life won’t cause such desperation to find funds from people who don’t want to part with their cash.
* YouTube video clip about creating an emergency fund