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If the Covid-19 pandemic didn’t highlight the importance of emergency savings, the events of the past week certainly should. As parts of South Africa burnt to the ground, hundreds of businesses have turned to piles of ash. Ash that once represented the hopes and dreams of hard-working entrepreneurs, big and small.
As the businesses went up in smoke, so too did countless jobs – jobs the country can scarcely afford to lose. In KwaZulu-Natal, people have banded together to clean up the mess left by looters and violent protesters, a crumb of comfort in a particularly demotivating time.
Still, that’s not going to fix the upcoming issues. Entrepreneur’s across the country took to social media, pouring their heart out about the fact that they’ve lost everything. Other parts of the country have been luckier, managing to escape the trauma inflicted upon Gauteng and KZN, in particular.
As Covid and these protests have shown us, we really cannot plan for the next unforeseen crisis. This calls attention to the importance of having emergency savings.
Before we dive into it, let’s just have a quick refresher on what an emergency fund actually is. Essentially, an emergency fund is money saved for when an unplanned situation rears its ugly head. Examples of this (apart from the unfortunate circumstances mentioned above) include car accidents, home repairs or even losing your job unexpectedly.
Having this financial cushion to fall back on means that you don’t have to worry about the financial part of the problem, but rather the problem itself. Most financial experts recommend that you have at least six months of your salary saved up. While recommended, that is a difficult task to achieve – particularly in South Africa, where people are struggling to make ends meet.
So what’s the bare minimum one should have in your emergency fund? Well, if you can’t quite stretch it to six months the minimum recommended amount would be three months expenses. If you had to lose your job, this will secure you in the interim, hopefully allowing you enough time to secure a new position.
While your long-term or life savings may be a mixture of property, company stocks or ETFs, it’s best to keep your emergency savings in a conventional bank account. Not only is this the least volatile form of saving, but allows you to dip into the money quickly and without much red tape. If you think of your emergency savings as a parachute or safety net, you begin to understand just how important and essential it is.
If you haven’t got an emergency savings plan, it’s time to start one. Even if you start with R100 or R1,000, put something away. More importantly, once you hit your personal goal (be it 3 or 6 months), don’t stop contributing towards it. The more you have stashed away for a rainy day, the less severe the damage to your life.
Read my other articles on emergency savings and careful financial planning:
- The importance of emergency savings – On the Money with Jarryd Neves
- Don’t go broke trying to look rich – On the Money with Jarryd Neves
- Keeping track of your spending – On the Money with Jarryd Neves
Last week, I asked you to send me your finance and investment queries. Here, Aidan Freswick* of Brenthurst Wealth Management shares expert advice by providing answers to your questions.
I am 55 years old and have about R 3.5m to invest. Please kindly advise accordingly as I plan to retire at about 60 years.
As we do not have detailed information about your overall financial situation (e.g., other assets like property that you own) or where and in what instrument the R3,500,000 is currently invested, it is not possible to provide an upfront investment solution. Various investment vehicles such as discretionary investments and pension funds have different rules of how to approach an end solution. A financial advisor will need to take into consideration how the funds are currently invested, together with a full financial needs analysis and a personal discussion to determine an investment strategy best suited to your needs and financial goals.
The financial needs analysis will provide the financial advisor with more information about your circumstances and future income requirements, and it would be best to first arrange a financial planning consultation as there could be multiple investment solutions to meet your needs. Read more about options for retirement and what income can be expected for different amounts invested.
- Aidan Freswick is a financial advisor at Brenthurst Wealth Management.
Have a question about share investing? Write to me at [email protected].
- How to fight inflation – On the Money with Jarryd Neves
- I’m doing all the right things: now what? – On the Money with Jarryd Neves
- Building wealth: There’s more to it than just a savings account – On the Money with Jarryd Neves
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