Save funds for unforseen emergencies

Momentum Metropolitan consumer financial education specialist Claire Klassen says having savings for unexpected medical bills, home repairs and job losses actually provides you with a safety net.

“In the face of economic hardship, an emergency fund acts as a crucial safety net. A mid-year financial check-in offers an opportunity to assess existing emergency funds and strategise for their growth.

“By consistently contributing to an emergency fund, individuals safeguard themselves against unforeseen expenses or financial setbacks in an unstable economy. An adequate emergency fund buffers economic uncertainties, providing peace of mind amidst turbulent times,” says Klassen.

“In a struggling economy, a mid-year financial check-in emerges as a beacon of financial empowerment and resilience. Embracing this powerful tool allows individuals to navigate financial turbulence with confidence, strengthening their financial footing amidst economic uncertainties.”

Velmah Nzembela, head of group corporate affairs at Assupol defines an emergency fund as “a financial cushion during unforeseen circumstances”.

“It prevents individuals from relying on credit cards or loans, which can lead to high-interest debt. In South Africa, where economic fluctuations and unforeseen events are common, having a well-funded emergency fund is even more vital to navigate financial challenges and protect your long-term financial goals.

“To determine your emergency fund target, consider your monthly expenses, lifestyle and any potential risks or uncertainties in your life. Financial experts often recommend aiming for three to six months' worth of living expenses. However, individuals with dependents or irregular income may require a larger fund. Assess your unique circumstances and set a realistic savings goal accordingly,” says Nzembela.

She says establishing a budget is an essential step in building an emergency fund.

“Analyse your income and expenses and identify areas where you can cut back. Trim discretionary spending and focus on essential items. This might involve reducing entertainment expenses, dining out less frequently, or finding more affordable alternatives for certain services. Redirect the money saved towards your emergency fund, ensuring that it grows steadily over time.

“One effective strategy to build your emergency fund is to automate your savings. Consider opening a separate account specifically for emergencies, preferably with a competitive interest rate to help your savings grow. Set up an automatic transfer from your bank account to a dedicated savings account each month (it will work like a debit order). This removes the temptation to spend the money and ensures consistent contributions to your emergency fund,” Nzembela says, adding that one can explore opportunities to generate additional income, such as taking on a side job, monetising a hobby, or freelancing.

“You can also seek career advancement or negotiate a salary increase with your employer. By diversifying your income streams, you can accelerate your savings and achieve your emergency fund goal sooner.

“Unplanned income, such as tax refunds, bonuses, or inheritances, present excellent opportunities to bolster your emergency fund. Instead of splurging on unnecessary purchases, allocate a significant portion of unexpected funds towards your savings. While it is reasonable to treat yourself, practising restraint and prioritising long-term financial security will benefit you in the long run. Remember, every windfall can significantly contribute to the growth of your emergency fund.”

She says building an emergency fund is “a vital component of financial planning in SA”.

“By setting realistic goals, implementing a budget, automating savings, increasing income, and maximising windfalls, individuals can achieve financial security and protect themselves against unexpected expenses. Start today, and gradually build your emergency fund for a brighter and more secure financial future. If necessary, talk to a financial advisor,” she says.

Klassen agrees, adding that during times of economic uncertainty, staying on top of personal finances becomes more critical than ever.

“Some people kickstart positive changes for the year ahead during January and others know that resolutions can be made anytime. Understanding how and why we stumble during the improvement of our financial behaviour gives us a better shot at success the next time around.

“It is critical for individuals to be persistent in the pursuit of improving their overall well-being. This includes their mental, emotional, and financial well-being. There is a driving need for survival through self-improvement,” says Klassen.

She gives these tips for your financial review:

Embrace a growth mindset – Financial struggles require a growth mindset. This exercise reflects on one’s financial journey, highlighting achievements and areas for improvement. If you do not achieve what you set out to do, for example not using your credit card or making another loan after settling the previous one. Forgive yourself and try again, telling yourself that you are not giving up, you live to fight another day. Watching Podcasts on your favourite social media platform that centre around self-development and forming habits is a great way to start the process of embracing a growth mindset.

This allows people to adapt to changing economic conditions and develop proactive money management habits. By seeking opportunities for financial education and empowerment, individuals can thrive despite economic challenges.

Evaluating Spending Habits and Budgets – In a challenging economic climate, analysing spending habits is crucial for maintaining financial resilience. Conducting a mid-year review of one’s budget allows for a realistic evaluation of expenses and income sources. Klassen says that by identifying areas where expenses can be minimised and discretionary spending curtailed, individuals can redirect funds toward essential priorities such as savings, emergency funds, or debt repayment. This evaluation encourages financial discipline, which is vital for navigating the unpredictable economic landscape.

Practically this means printing out a three-month bank statement and going through the deductions noting any deductions that are considered wasteful. For example, having more than one online streaming service in addition to a paid for television subscription may not be the best use of money. Select one that appeals to you most and cancel the others.

Identifying Opportunities for Savings – As the economy struggles, every penny saved holds immense value. This exercise can help identify potential savings opportunities. By scrutinising utility bills, subscription services, and other recurring expenses, individuals can uncover areas where costs can be reduced. Moreover, this assessment facilitates comparison shopping, seeking out better deals and discounts that can lead to substantial savings.

mashabas@sowetan.co.za