The term “emergency fund” refers to money put away that people can use in times of financial distress. The purpose of the emergency fund is to improve financial security by creating a safety net to help cover unforeseeable, high-cost expenses which, in its absence, could have catastrophic effects on your financial situation.

What is your name and title/position?

Kathryn Main CEO - Money Savvy Group

What are your preferred pronouns?

She, her - I am heterosexual

How would you define an emergency fund?

The term “emergency fund” refers to money put away that people can use in times of financial distress. The purpose of the emergency fund is to improve financial security by creating a safety net to help cover unforeseeable, high-cost expenses which, in its absence, could have catastrophic effects on your financial situation.

What is the purpose of an emergency fund?

The purpose of an emergency fund is simple, it is money you've set aside to be able to pay for life's unexpected events without getting into debt.

What benefits does having an emergency fund offer to individuals?

• Having an emergency saving fund will relieve stress and give you peace of mind as you know that you have a financial safety net if you need one due to job loss.
• A saving fund can prevent you from going into debt - Using credit cards and overdrafts incurs interest and you will pay back more if you borrow money for your emergencies.
• Your saving fund can make you money if you keep the cash in an income bearing bank account. You will earn interest. If you put that interest into a tax-free savings account, you can benefit from not paying tax.
• Having savings means we are planning for the worst but hoping for the best and no matter what happens we have a safety net.

What characteristics of an investment vehicle are important for emergency funds?

• Save your money in an interest-bearing bank account that has easy access. Compare which savings accounts will give you the best interest and the cheapest bank charges.
• You could join a stokvel or start a stokvel.
• If you consider yourself to be more of a high-risk investor you could try growing your money through investing on a platform like www.easyequities.co.za and put all of your dividends into a tax-free savings account.

What steps should one take to establish an emergency fund?

Step 1 - Make a decision on how much money you are going to save each month towards your emergency fund. I would suggest setting yourself some financial goals. Set yourself some smaller goals first and achieve those and them move onto bigger goals. Saving is a mindset and needs to be a habit that is created. Challenge yourself to save 2 months’ worth of living expenses as a start and once you have achieved that make a bigger goal.
Step 2 - Decide on the saving mechanism you want to use and do the required research on the pros and cons and costs involved. Make sure to get the highest interest rate with the least bank fees and make sure you can access your money when you need it.
Step 3 - Try and automate the saving process. Set up a debit order on the day you get paid so you are not tempted to spend that money.
Step 4 - don’t take on anymore debt. When we have high debt payments we can’t afford to save. If you have debt try prioritizing paying it off. This will free up more money for you to save.
Step 5 - Update your budget to include your new saving amount.

Once established, when should the emergency fund be used?

We cannot plan for all of the financial threats that will come our way in life but having an emergency saving fund will stop those financial threats from destroying our financial well-being. Emergency funds are there to be used in emergency situations like loss of a job or death of a family bread winner.

With the state of loadshedding currently, would buying a UPS or investing in a generator be considered a wise use of your emergency fund?
I would say “yes”. If you cannot work, you cannot make money to support yourself and your family. You are the biggest assets in your life you need to ensure you can make money off that asset.

Notes (for any other information not covered in the questions above)
I would suggest a minimum of 12 months’ worth of living expenses be saved in the bank. We can’t always predict the future, but we can be prepared for it. People who had savings during covid and did lose their jobs and businesses, probably did not lose their homes and cars if they had an emergency savings account.