Why you need an emergency fund

“Most financial plans are derailed by unexpected expenses which is why having an emergency fund should be ones first financial priority– because no matter how well one plans, life happens,” says Mapalo Makhu, our Absa Money Wellness expert.

It is easy to turn to personal loans, credit cards and overdraft facilities when you need to fill a shortfall. While these may provide a short-term solution, the long-term effects are costly. An emergency fund is about avoiding credit and speaks to good money habits. You never know what will happen so save where and when you can.

To save for an emergency fund, you need to set a goal for yourself: how much do you wish to accumulate in the fund? Then come up with an action plan. Makhu suggests the following:

• You can save a fixed amount every month; whether this is R500 or R5,000, let it be an amount that works for your budget.
• If you are a freelancer or earn on commission, perhaps a more practical approach would be to save a percentage of your income

• One of the quickest ways to beef up your emergency fund is through a cash windfall; you could save a percentage of your bonus or even your annual tax refund.
• The best, and probably the most efficient way to ensure that you do save for an emergency fund, is to automate your savings. This could mean setting up a monthly debit order until you reach your emergency fund goal.

She says “Having an emergency fund allows you to plan for the future without being scared of what might happen. It puts you back in the driver’s seat knowing that if a financially demanding event happens, you and your family are covered”.

For more tips, remember to catch Mapalo Makhu on Absa Money Wellness every Monday just after 5pm on #TheBestDrive.