Starting an emergency fund with a small amount is vital!

It is important to view your money holistically. If you can slowly pay more towards your interest-bearing loans and credit cards, you can minimise that outflow of income. This can lead to freeing up money to be used towards an emergency fund in the future. You may see it as a small step today, but it’s a step that could produce big results soon.

If possible, start by saving small amounts towards your emergency fund while continuing to pay off your debt. Once you have reached your emergency savings goal, shift your focus to paying off your debt as quickly as possible. That way, if you are faced with unexpected expenses such as replacing a tyre, you won’t have incurred more debt to cover the costs.

There’s also a common misconception that young people don’t need an emergency fund. But what happens if your geyser bursts unexpectedly? That can set you back significantly as a young adult who is trying to progress financially. When these things happen, we often use our credit cards, which can perpetuate the cycle of debt. Having an emergency fund helps to cover you when these curveballs come your way.

First, you need to decide to start saving. Then you need to decide where to save your money. For an emergency fund, consider an investment vehicle that earns you compound interest and is accessible without a penalty, with a reputable financial institution. Consider having a debit order set up for your emergency fund contributions; that way you will pay yourself first, before any other expenses.

Be specific about the amount you want to save towards and review this goal constantly. If your goal is to save R1 000, you save and build up to R1 000, then maybe increase the amount to R5 000 once the goal has been reached. If you happen to use some of the money from the fund due to an emergency, you need to plan how you will replace this money and reach your goal again.