How to create an emergency household fund in three simple steps

Owning a home is a long-term commitment that can span a lifetime. While we all hope for the best, it is likely that at some stage during our lives, a home emergency will strike, so it is best to be prepared.

Being prepared for the unexpected is part of owning property,” says Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.

“Setting money aside each month is the best way for homeowners to prepare for and deal with an emergency without being forced into debt.

“A contingency fund will help homeowners be ready for the unexpected while building a solid foundation for their financial security and independence,” he says.

On average the typical buyer of a single-family home will remain in the property for around 13 years – often longer. “I think it is fair to say that a lot can happen over a decade or longer.

“The goal is to have the means to address the changes or emergencies that occur, without it jeopardising the homeownership or placing the homeowner under severe financial pressure.”

In essence there are three basic steps that homeowners need to take to start creating an emergency fund. This will provide them with a safety net that will assist with any obstacles that come their way, regardless if it is something as big as los- ing their job or as trivial as a leaking toilet.

Goslett gives us the three steps blow:

As a bare minimum, homeowners should aim to have about one month’s salary saved; however ideally six months’ income in savings is preferable.

A six-month financial cushion should see homeowners through most crises. That said, saving up half a year’s worth of income will be no mean feat, it will take a fair amount of time and planning to achieve. Setting smaller goals along the way will ensure that homeowners maintain focus and stay motivated.

When wanting to build up a significant amount of savings, selecting the right savings account is crucial for success. Interest rate yields will vary from one account to the next, so it might require some research to find the right product that will yield the greatest return while meeting the criteria.

Often the savings accounts with the highest interest rates will require the account holder to lock their money away for a certain fixed period. This could be problematic to a homeowner who requires the money in an emergency.

The interest rate, as well as accessibility, will be key factors to consider.

Setting up a monthly automatic transfer will make the process easier and will help homeowners remain disciplined. If a predetermined amount of money is transferred into a savings account automatically each month, it takes the decision-making process out of the equation and ensures a contribution is made to an emergency fund regularly with little effort on the homeowner’s part.