5 Tips to building an emergency savings fund

Life is full of unexpected surprises and not all of them are welcomed as we have seen over the last year. We can't always be prepared for all the challenges, like physical or emotional, that life presents. This is why we should have an emergency savings fund so that at least we will be prepared. If you don't need the emergency fund you can always pay off your bond more quickly or put a bigger deposit down when buying a new property.

Building an emergency savings fund takes willpower, discipline and time. So, it's best to get started now. Here are 5 tips on how to build an emergency savings fund.

1. Open a separate emergency savings account

Consider opening a tax-free savings account like a fixed deposit or unit trust account. The benefit of these is that all the interest, dividends and capital gains earned will be tax-free. Also you will not have to pay tax on the growth of your investment nor if you withdraw from this account.

Do your due diligence and find a financial institution, preferably different to your regular bank, that offers the best interest rate and fee structure on savings accounts. This account must not be linked to your bank card so that ATM withdrawals aren't possible or tempting. 

Calculate how much you can save each month, and arrange a debit order to automate a monthly deposit of this amount into your emergency savings account. Any extra money can be added to this account at any time. It's fun and heart-warming watching this grow!

2. Revisit your insurance policies

Consult an insurance broker about your insurance policies to see if you are insured correctly and are only paying for the cover that you really need. Any reduced amount in your monthly insurance payments can be added to your emergency savings fund monthly debit order.

3. Review your financial portfolio  

Review your financial portfolio with a professional financial advisor for sound advice on how to upgrade and improve your financial stability. He may suggest possible improvements to your financial plan that might help you achieve your long or short-term goals sooner. This will also protect you and your family and give you peace of mind. 

4. Restructure your tax 

There are many ways to reduce your taxable income. Obtain the services of a tax practitioner who will advise on how best to optimise your tax deductions, how to pay less tax e.g. by contributing to a tax-deductible retirement annuity and how to maximise on potential future tax refunds. 

5. Reduce your expenditure

Only spend what you make and SAVE!

Revisit your bank and credit card statements and analyse where you can reduce your expenditure. Consider reductions like buying less clothing, dining out less often, work travel expenses by creating a lift club and cancelling little used or unproductive contracts and memberships. 

For grocery purchases be strict:

• Plan your weekly menu and shopping list. 
• Look online for any special offers for those items on your shopping list. Don't fall prey to specials like "Buy 3, pay for 2" as invariably you don't use all the items and they just go to waste.
• Only shop for those items listed on your shopping list - that way you'll buy less.

With conscious cutting back on your monthly expenditure, you will be surprised at just how much money you can save each month.

Review your budget regularly to keep your savings and expenditure under control. Review your financial and insurance portfolio annually with the professionals to ensure your financial plan is upgraded when and where applicable and is the best for your needs.

ONLY use your emergency savings in a REAL emergency. When you are faced with unexpected vehicle or home repairs, medical expenses or loss of income, you will be glad to have your emergency savings fund to save you and your family from financial ruin.

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