An emergency fund is an amount of money set aside in case things go wrong financially. Regardless of your income, you must save money for an emergency fund. When you run into financial difficulties, the funds will come in useful.
An emergency fund should not be confused with your savings because they serve different purposes. The emergency fund is for unforeseeable financial emergencies, whereas savings have a specific purpose that can be clearly identified, including the cost of the item saved.
Given the importance of an emergency fund, Rateweb has compiled a list of 10 tips for saving for one. This is motivated by the desire to assist individuals in dealing with any future financial crisis.
We’ve seen how Covid-19 has impacted millions of South Africans who have no money in their bank accounts. It’s time to turn around your financial situation by investing in your future.
We have compiled a list of ten tips to assist you in capitalizing on your income and putting some of it aside for an emergency fund. The following are the top ten tips for creating an emergency fund:
1. Open A Separate Emergency Account
The first step is to open an emergency account, which can be done at any South African bank. You can save your money in either a non-interest earning or an interest-earning account. Withdrawing cash will be dependent on the convenience of your bank.
A separate account will help you distinguish between your emergency fund and the rest of your savings. Budgeting, transaction tracking, and monitoring the activities in an emergency savings account will be simple.
2. Start Now and Small
There is no better time to begin than right now. You may believe that you do not have enough money to save for an emergency fund, but you are mistaken. When starting an emergency fund, you don’t need to save much; even R100.00 will get you started.
The benefit of an emergency fund is that it is rarely touched, allowing it to accumulate month after month. When you first start out, you can set aside anywhere from 2.5 percent to 5 percent of your net income for an emergency fund.
3. Break Your Savings Goals in Small Batches
It is best to divide your savings goals into small batches to ensure that your goals are attainable. Make short-term goals that are three months in length. Plan to save R500.00 over the next three months, for example, by clearly stating that you want to save R150.00 in months 1 and 2, and then R200.00 in month 3.
Creating such savings goals will assist you in meeting your savings goals, which may be due in 5 or whatever years you have specified. This is an important point to understand because you may become frustrated with your inability to save money through realistic planning over time. It is worth noting that Rome was not built in a single day.
4. Make Automatic Deposits To The Emergency Account
Since we live in a computerized world, delegate the deposit of funds to the emergency account to a computer. This way, you won’t forget to deposit money into the account and you won’t spend money that should be going into the emergency fund.
The emergency account will always be topped up with funds. To avoid debit order transaction fees, use the same bank to which your salary is credited. Inter-account transactions are free of charge.
5. Put Extra Money Into The Emergency Account
You may find yourself with a Gig or extra money every now and then, so put some or all of it into an emergency fund account. Your emergency fund will grow quickly, and if you use a high-interest yield account, you will be able to reach your goals in less time than expected.
Income such as tax refunds or work commissions is an excellent source of funds for an emergency fund account. However, there is no need to deposit this money into an emergency account if you have a better use for it.
6. Cut Your Budget
As frightening as it may sound, there are some things you can cut out of your budget, either partially or completely. Because we use the internet more than ever before, you can save money on cable and share the cost with someone else since apps can be used by more than one person.
Revisit your budget and cut as many expenses as you can.
7. Do Not Spend Extra
When it comes to spending, don’t go overboard; instead, stick to your budget. This is an excellent lesson to teach yourself, as it has the potential to help you become a better money manager. Your ability to stick to a budget will benefit you not only in increasing your emergency fund but also in general savings.
8. Get A Freelance Gig
Getting a freelance gig will help you earn more money, and since this money is rarely budgeted for, it can be added to your emergency fund account. Freelance jobs can be found on a variety of local and international websites.
9. Reduce Your Subscriptions
Many subscriptions are less expensive, and some can be canceled. People are unconcerned about subscriptions because they are less expensive, with some starting as low as R9.99. This is the time to go over your bank statement and cancel some of your subscriptions.
Gaming subscriptions or other services that you do not require right now may be active. Remove all of these and only keep the ones that are important.
10. Keep Saving Beyond Your Goal
Our final piece of advice is to continue saving after you’ve reached your savings goal. You never know how severe your expenses will be in the event of an emergency, so prepare by saving more. Saving more means earning more interest on the money you’ve saved.
Given that banks issue different interest rates for money saved, you are likely to receive a higher interest rate if you continue to save.
Conclusion
An emergency fund is critical for you to survive during difficult times, it should be one of your top priorities when saving money. Maintain your emergency fund so that you have most, if not all, of the funds you will require in the event of an emergency.
