Navigating the highs and lows of personal finances with resilience can be that much easier to manage when you have an emergency fund.
Life can be unpredictable, so it is important that when the tide of financial insecurity hits, funds are set aside specifically for unforeseen events a personal financial nature, such as the loss of a job, a debilitating illness or a major repair to your home.
Another reason to have an emergency fund is to stop you from relying on credit to bail you out when things get tough. An emergency fund is an account that you should always have but never touch unless you absolutely have to.
As a rule of thumb, and to be safe, you should try to have enough money in your emergency fund to cover all of your necessary expenses for a minimum of three to six months. These are things you honestly cannot live without like rent, utilities, food, transportation, and any required debt payments. That amount will vary from person to person, but you should have enough saved up to cover your necessities in case of a financial catastrophe.
Saving enough to cover at least three months’ expenses may seem unrealistic and unattainable, but with conscious effort and discipline, this financial goal is achievable.
To get started, open a savings account solely for an emergency fund and earmark a set amount that goes into it from your salary every month and do not touch it. To help with the discipline of making the monthly contribution, set up an automatic recurring transfer from your current to your savings account. Bank Windhoek offers a wide variety of savings account options as well as short-term Money Market products that are ideally suited to building your emergency fund. You might even be able to ask your employer to split the monthly emergency fund contribution from your salary, and have them deposit it into the separate savings account automatically. Your savings account doesn’t have to be a high interest account, either. The point is to set it aside, not to invest it.
Once your emergency fund starts to grow, it is important that you leave it alone. Resist the temptation to use it for anything you don’t really need. Cut up the ATM card for that account if you have to. Think of it as someone else’s money if it helps. The day may come when you need those funds — really need them — so don’t spend them now unless it’s an emergency.
So, what is an emergency? When a sudden expense pops up, it can feel like an emergency—but that might not be true. Here are three questions that help determine if you need to tap into your emergency savings:
1. Is it unexpected?
2. Is it necessary?
3. Is it urgent?
The more you answer yes, the more likely it is an emergency and the more it justifies using money from your emergency fund.
Now that you have an understanding of the importance of an emergency fund, get into the habit of working with a budget, pay off your debt, and start saving. You’ll be amazed at how quickly your emergency fund piles up when you are no longer paying off debt!
*Hayley Allen is the Head of Corporate Affairs at Bank Windhoek New Era Reporter
2018-07-24 09:46:29 | 2 years ago