Ever heard the phrase: expect the unexpected? It’s such a worthwhile philosophy to adopt in your financial life. You can never predict when life will throw surprise expenses at you, so it pays to plan ahead. Having an Emergency Fund means you can take things like car repairs, a spell in hospital, or even a spur-of-the-moment family vacation, in your stride. By putting money away each month, you build a buffer between unplanned-for expenses and your financial goals.
It’s hard to know exactly how much you may need as this depends on your average monthly spend, whether you’re married, if you have children and how secure your job is. A common practice is to have at least 3 months’ worth of monthly expenses stashed away, although some experts recommend even more.
Where to keep your emergency fund
There are many options when it comes to savings and investment accounts. As you start building an emergency stash of money, it’s important to remember that you will need easy access to it when the need arises. These hold the added bonus of SA’s best rates, meaning your emergency fund will grow as your interest accumulates.
A good strategy to follow is to set up a small emergency fund in a separate Savings Pocket. This will allow you to cover for those small emergencies that would normally mess up your budget. Once you’ve built up sufficient cash savings, you could continue building your emergency fund using a Tax-Free investment.
Tax-Free investments are a great way to invest money, especially since they don’t carry the burden of paying tax on the growth. This is particularly useful when the investment is left for a few years and can grow exponentially.