Ina Opperman

By Ina Opperman

Business Journalist

How to build your emergency financial safety net

Are you prepared for large unforeseen expenses, such as major car repairs or losing your job by having an emergency safety net?

If the past few years, especially during the pandemic, taught us anything, it is how important it is to have a financial safety net. However, many consumers do not know how to start building this safety net.

“Ask any trapeze artist and they will tell you that a safety net is a non-negotiable part of flying high. While few of us are circus performers, an emergency safety net is still one of the most important requirements for our peace of mind and financial stability,” Himal Parbhoo, CEO FNB Retail Cash Investments, says.

“Life has a way of throwing curveballs our way. Whether it is an unexpected car repair, an unavoidable medical bill, or a change in employment status, unexpected events are waiting around each corner. And while we will never know when these little surprises might pop up, you will at least be prepared to handle whatever financial impacts they bring with them if you have an emergency fund in place.”

He says 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.

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Protection from money stress

“It protects you from money stress. An unforeseen emergency does not just affect your bank balance, it can also be a source of major stress if you do not 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 such as selling your house or dipping into your retirement savings in times of crisis.

Parbhoo says it is also a way of taking advantage of opportunities. “An emergency fund is not just for financial protection. It also provides the flexibility to grab life’s opportunities as they arise, such as 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.”

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Emergency safety net also saves you money

An emergency safety net can also save you money. Parbhoo says 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!

When you have an emergency fund, it also lowers your reliance on credit. “Credit is not necessarily a bad thing, but if you must 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.”

All you have to do is start an emergency fund. “Many people put off starting an emergency savings account, believing they lack the money needed to put into it every month.” However, Parbhoo says, even in challenging times, it is possible to save small amounts regularly.”

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This is how to build an emergency safety net

This, he says, is how to start:

  • Draw up a budget. Yes, he says, it is the dreaded ‘B’ word. There is no age limit to starting a budget. In fact, a well outlined budget can help you untill 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 does not only mean cutting out luxuries. Consider affordable alternatives for your internet or cell phone 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 where your salary gets paid, to your emergency savings. Think of it as paying yourself first and very soon you will not even notice the amount deducted each month although you will enjoy seeing that savings balance grows.

Parbhoo says you must think of an emergency savings account as your very own security blanket. “While it is possible to survive without one, having it certainly makes life more comfortable and the ups and downs a lot less daunting.”

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