Ask any trapeze artist, and they’ll tell you that a safety net is a non-negotiable part of flying high. While few of us are circus performers, an emergency savings fund is still one of the most important requirements for our peace of mind and financial stability.
Life has a way of throwing curveballs our way. Himal Parbhoo, CEO FNB Retail Cash Investments, says “Whether it’s an unexpected car repair, an unavoidable medical bill, or a change in employment status, unexpected events are waiting around each corner. And while we won’t ever know when these little surprises might take place, with an emergency fund in place, at least we are prepared to handle whatever financial impacts they bring with them”.
He adds that apart from the obvious benefit of having money available in a crunch, there are many other reasons why an emergency savings fund makes a lot of sense:
It protects you from money stress. An unforeseen emergency doesn’t just affect your bank balance, it can also be a source of major stress if you don’t have the money you need to deal with it. Having an emergency savings fund serves as a buffer, giving you peace of mind and saving you from having to make difficult decisions like your house or dipping into your retirement savings in times of crisis.
It’s a way of taking advantage of opportunities. An emergency fund isn’t just for financial protection; it also provides the flexibility to grab life’s opportunities as they arise. This could be starting a new business, pursuing further education, or investing in a unique opportunity. An emergency fund enables you to take these risks without worrying about financial repercussions.
It can save you money. If you have home and vehicle insurance, you can usually reduce your monthly premiums by increasing the excess you have to pay when you claim. An emergency fund allows you to choose a higher excess, and you can then plough the money you save on lower premiums back into the savings fund. Talk about a win-win.
It lowers your reliance on credit. Credit isn’t necessarily a bad thing, but if you need to use a credit card to pay for emergency expenses, the resulting monthly repayments can cripple your budget. An emergency fund not only decreases this dependence, but also ensures that you protect your credit score from any risk that you may not be able to make a monthly repayment down the line.
Actually, you can start an emergency fund!
Parbhoo explains that, “Many people put off starting an emergency savings account, believing they lack the money needed to put into it every month.” However, even in challenging times, it’s possible to save small amounts regularly. Here’s how to start:
Draw up a budget. Yes, it’s the dreaded ‘B’ word. There is no age limit to starting a budget. In fact, a well outlined budget can help you till you retire. Having a household budget is the first step towards successful saving. A simple budget helps you track your spending and identify areas to reduce expenses, freeing up funds for your emergency savings.
Reduce non-essential expenses. This doesn’t only mean cutting out luxuries. Consider affordable alternatives for your internet or cellphone plans, cancel unnecessary subscriptions, and search for better deals on insurance and other regular expenses.
Automate your savings. Set an automatic monthly transfer from the account into which your salary gets paid, to your emergency savings. Think of it as paying yourself first, and very soon you won’t even notice the amount deducted each month – but you will enjoy seeing that savings balance grows. Also, setup the Bank Your Change® feature linked to your FNB Savings Account where customers can save from R2 to R50 every time they use their debit cards. Think of it as saving while you spend.
Think of an emergency savings account as your very own security blanket. “While it’s possible to survive without one, having it certainly makes life more comfortable and the ups and downs a lot less daunting,” concludes Parbhoo.