When you are suddenly faced with an unexpected expense or a major lifestyle change, you don’t want to hit a panic, plunge yourself into debt and put yourself under a lot of financial pressure.
Instead, you want to master the art of adulting by using your well-stocked emergency fund to take care of that unexpected cost. This is how you make that happen:
Budget priorities: Before starting your emergency fund, make sure your budget allows for your fixed monthly costs such as:
- Mortgage or rent
- car instalments
- school fees
Be realistic about your emergency fund: Your fridge stops working, geyser bursts, or the motor for your gate breaks down. You spill coffee on your laptop. You need to replace these. So you also need to plan for this by setting aside money each month in an emergency fund that will at least be enough to help cover these relatively common unexpected costs.
Prepare for worst-case scenario: Besides being there for small, unexpected breakdowns, your emergency fund is a critical safety net in the event that you find yourself unemployed or your business closes down. It is advisable to have enough money to cover at least three to six months’ living expenses saved in an emergency fund in the event of unemployment, to tide you over until you begin to earn an income again.
Commit to saving: Set up an automatic payment schedule on your current account so that your monthly emergency fund payments are deducted as soon as you receive your income each month and go into your separate savings accounts. Take a look at some of the investment account options from Old Mutual Investment Group to get some ideas on what would work best for you.