Building an emergency savings fund

Imagine how you’d cope if you lose your job, or if your car breaks down. What about if you need to move, or carry out a major unplanned repair to your home? Or if you or a family member have a large medical expense that you didn’t foresee?

Being prepared for the unexpected is an important component of your financial wellbeing. You'll be much better mentally and financially if you plan for such eventualities instead of dealing with them only when they arise. 

A major unplanned expense can easily tip you into financial hardship and debt, and undo all the gains you’ve made in managing your money and financial affairs. 

Of course, putting money aside for an unexpected cost isn’t easy, especially when you don’t know what it’s for. But the alternative – potential debt and financial insecurity – may be enough to motivate you to take action. 

This can vary according to your current income, financial situation, and whether you have insurance to help cover emergencies. 

Experts generally recommend building up enough savings to cover at least 3 months of your essential expenses. This should be enough to cover you in an emergency and allow you enough time to get back on your feet. 

It may feel daunting to reduce your spending, but there are simple and practical steps you can follow. 

•    Find creative ways to reduce your expenses 
•    Change your spending habits
•    Sell unwanted possessions

1. Set savings goals

This can help you track your progress and measure your success. Once you’ve put money aside to cover at least 3 months’ expenses, you can save for any other goals you have, like a holiday. 

2. Share your savings goals

Discuss your emergency fund and savings goals with your loved ones. Explain why you’re doing this and why it’s important. Sharing your goals can also help you to stay on track. 

3. Keep your savings separate

Avoid the temptation to spend your emergency fund. Set up a separate savings account to keep this money separate from your day-to-day spending. Setting aside an account for this also makes it easier to keep track of how much you’ve saved.

4. Save regularly and automatically

Instead of trying to save what you have left at the end of the month, set up an automated transfer to your savings account on the day you’re paid. That way, you won’t risk forgetting to transfer the money, and you’ll also know how much you have left in your current account to spend.

5. Saving any amount helps

Some months may be tougher than others and it may not always be possible to put away the same amount of money. But instead of feeling disheartened, try to put away even a small amount. No matter how small, these amounts will add up and build a valuable savings fund over time.