Tips on how to start your emergency savings
One of the most important aspects of achieving greater financial freedom is having emergency savings in place – especially if you own your own home. Now that interest rates have dropped and inflation is easing, there might be a little more wiggle room in homeowners’ budgets to start topping up their savings again.“Setting aside money each month in a contingency fund gives homeowners a financial safety net, helping them avoid disaster when unexpected crises arise,” says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
Elaborating on what he means by this, Goslett explains that unexpected damages to the house, such as roof repairs or rising dampness, can occur at any time – and then there are the financial emergencies that affect you as the homeowner, such as job loss or a cut in salary. In either scenario, having a cushion of emergency savings can prevent the need for taking on further debt.
“Regularly putting money aside for a rainy day can be challenging, but the consequences of not having a financial cushion to fall back on can act as a useful motivator,” he suggests.
As a bare minimum, Goslett recommends that homeowners aim to save approximately one month’s salary. “In an ideal situation, three to six months’ income in savings is preferable. That said, saving up half a year’s worth of income is not an easy thing to achieve and will take a long time. Setting smaller goals can help you maintain focus and stay motivated.”
When setting up a long-term savings account, Goslett recommends choosing an interest-bearing option that is separate from your everyday banking to avoid the temptation of using it for non-emergency expenses. Interest rates can vary between accounts, so it's important to research different products to find the one that offers the best return. High-interest accounts often require you to lock your money away for a fixed period, which could be a challenge if you need immediate access in an emergency. However, this feature can be beneficial if you find it difficult to resist spending money that’s readily available.
As a final piece of advice for those who are struggling to get into the habit of saving, Goslett suggests setting up a debit order or automatic payment each month to avoid making it optional.
“If a predetermined amount of money is transferred into a savings account automatically each month, it takes the decision-making process out of the equation and ensures that a contribution is made towards the contingency fund regularly with very little effort on your part,” he explains.
“While it’s never easy to carve out room in the budget for savings, the long-term consequences of neglecting it far outweigh the short-term discomfort of tightening your purse strings when finances are stable. My advice is to take full advantage of the interest rate cuts and get into good habits while you can afford to do so,” Goslett concludes.
