It’s sage advice that declares, “Save for a rainy day”. As advocates of wise spending and prudent financial planning, Indwe BlueStar believes that it’s vitally important to be prepared for times of uncertainty and the possibility of unforeseen challenges.
Without painting too bleak a picture, one only has to look around to see the many risks and threats to our financial wellbeing, both individually and as a nation. With the Covid-19 pandemic being the most glaringly obvious financial stressor of current and recent times, we’ve experienced even further strain due to civil unrest and looting, the KZN floods that crippled the harbour and the alarming hike in petrol prices, cost of living, as well as increased costs associated with power outages.
Speaking of saving as a simple, feasible solution, Indwe BlueStar’s Danie van Niekerk says: “As with most challenges, resilience and recovery starts with taking small, intentional steps toward a goal or solution. We believe that the best way to withstand times of financial uncertainty is to have an emergency fund in place.”
What is an emergency fund?
Historically, having enough cash saved up to cover three to six months of income is considered an ideal emergency fund. This safety net is an easily accessible account that can be drawn from in times of difficulty, whether for health emergencies, costly car repairs, periods of unemployment or loss of income, or the many other challenges that life may throw your way.
However, for many South Africans, a six-month financial cushion seems unattainable, and an intimidating figure that can dishearten even the most prudent saver.
Indwe BlueStar’s practical steps to saving for a more secure future
According to van Niekerk, no amount is too small to start your emergency fund. “There’s a common misconception that you need a lot of money to make an emergency fund feasible,” he says. “That’s simply not true! The key message is that it’s fine to start small. Contribute R10 or R100 when you can, but getting started is what’s important.”
Van Niekerk shares how to cultivate a sense of control and confidence by being financially prepared through saving.
- Set a goal.
Consider current income, living expenses and lifestyle. Think about where unforeseen financial burdens may arise, what those situations may look like, and what you’d need to face those challenges. Once you’ve reached your savings goal, reassess it and aim even higher.
- Start today.
Don’t wait until you have a lump sum to save. Start by tucking away small amounts of money, while not forgetting to continue servicing your debts. You can save as little as R50 – R100 per month, and deposit a little extra when funds allow it. Just start somewhere.
- Minimise your debt.
Minimising debt plays an important role in saving. Contribute as much as you can toward your interest-bearing loans and credit cards, so that you can reduce those monthly obligations. You’ll gradually free up more funds to direct toward your emergency fund.
- Automate your deposits.
By setting up automated monthly deposits into your emergency fund, you’ll take the admin and worry out of saving, and you’ll be less likely to lose discipline along the way. Set up an affordable automated deposit and if you have a little extra cash from time to time, you can transfer that manually.
- Mitigate unnecessary expenses.
While you’re trying to funnel your extra cash into your emergency savings, look for ways to cut back on lavish spending. This could be as simple as eating out less, shopping smarter, or reviewing and cancelling unused contracts or memberships.
- Choose a smart savings facility.
Emergency funds need to be accessible without penalties, ideally invested into an account that earns compound interest, and it should be placed in the care of a reputable financial institution or bank.
- Change your mindset.
Van Niekerk states that saving money is mostly psychological. Some may think they simply can’t do it, or that they don’t need to save. It’s important to remember that savings provide security from unnecessary financial stress and debilitating debts incurred when the unexpected happens.
“Once you’ve shifted your perceptions and taken your first step, you’ve taken a giant leap toward establishing positive financial behaviours,” says van Niekerk. “These kinds of habits will stand you in good stead for a lifetime of confidence and stability.”