Tag: saving for rainy days

By Tokiso TKay Nthebe Nothing can throw off one’s finances than an emergency, be it a medical emergency, untimely passing of a loved one, car or home repairs and loss of income. Emergencies require that you have money readily available to address them as they occur. Sadly, many people are usually financially unprepared to take care of these unexpected expenses, leaving them vulnerable and exposed. This blog discusses five practical steps to help you start building an emergency fund. Why do you need an emergency fund? An emergency fund is a cash flow management and budgeting strategy used to accumulate savings that will help you to take care of unexpected expenses. Since emergencies can take you by surprise, having a financial safety net and money available can help you avoid taking unnecessary debt, thus giving you peace of mind. As aforementioned, examples of emergencies include, but are not limited to loss of income, medical emergencies, car or home repairs, loss of employment or sudden death. A frequently asked question is ‘how do I start building an emergency fund?’ Set an emergency fund goal The rule of thumb is to have six (6) times your monthly expenses saved in a highly liquid and accessible account. Say for example that your expenses amount to R15 000 per month, your emergency fund should at least have R90 000 to cater for these emergencies. At first sight, R90 000 can seem insurmountable and unattainable. However, it is about having a goal and working towards achieving it. Start small and be consistent Talking about having a goal, allocating money towards building an emergency fund, especially with budgets that are already stretched can seem daunting. It is paramount therefore to start small, pace yourself and be consistent. You can start with R500 every month for example, gradually increasing it month on monthly basis or annually. The secret lies in being consistent, staying the course and developing good savings habits. Increase your sources of income For many people, there is usually more month than money, with close to nothing left to allocate towards savings. If you currently rely on only one source of income, consider increasing your income streams as a strategy to building an emergency fund. You can do this by finding creative ways or thinking outside the box to unlock opportunities to earn extra income. What skills or habits can you monetise? What can you sell or do to increase your income? By starting a side hustle that you can run and manage on the side can help you earn extra income that you can allocate towards your emergency fund. Be intentional and creative. Cut down on unnecessary expenses In a previous article titled ‘Declutter your finances and take control’ available on theReporter’s website, I shared a few ideas to help you declutter and cut unnecessary expenses. By reducing expenses and living below your means, it becomes easier to find an extra R200 or R500 that can go towards your emergency savings. Spend time reviewing your expenses and cut where necessary. Be intentional and get it down Nothing will happen or change unless you are intentional about building your emergency fund. A good starting point is to determine how much you can commit every month towards your emergency fund. If you can afford R300 for example, commit, open the account and set up a scheduled payment. By automating this process, you remove the hassle of having to manually transfer the R300 every month. Be disciplined and do not shortchange yourself. Emergencies happen when we least expect them. Do not be caught unprepared! It takes deliberate action and consistency to build an emergency fund. The sooner you start, the better. So, start today and start with what you have! Tokiso TKay Nthebe is an author, podcast host, financial coach and advisor at TKO Financial Wellness & Advisory who is passionate about financial wellness, education and financial planning. For more visit www.tkofinancialwellness.com or email info@tkofinancialwellness.com

Tag: saving for rainy days

Five practical steps to start building an emergency fund

Quick Links

Resources

Support