How to create a fund for rainy days

Shirley Smith

It’s only when you’re faced with an unexpected emergency and you have no money to pay for it that you realise how valuable a little preparation would have been. Prepare for those inevitable rainy days by creating an emergency fund.

Why it’s important

When you’re in a position where you need to pay for something unexpected, it’s easy to turn to personal loans and credit cards. But such solutions only create a cycle of debt-dependency and limit your credit. An emergency fund can earn you interest until you need it.

Budgeting

Start saving immediately, with whatever you have. Even R50 is better than nothing. Once you’ve begun, it’s easier to keep it up and focus on putting aside that little extra every month. If you may struggle sticking to your savings commitment, arrange a debit order.

What account to use

You only need to open a separate account and put some money in it. Choose an account that’s safe, reliable and accessible, at a reputable institution. It must have an interest rate that matches or beats inflation. Otherwise, your savings will actually lose value. Currently, you need a savings account that gives you an interest rate of at least 6.5%. You must be able to access your money instantly It should be linked to a transactional account Shirley Smith is COO at Old Mutual Finance.

This was first published on Old Mutual Finance’s blog.