How to build an emergency fund seems far beyond reach for many South Africans. Living below their means is a dream that many aspire to but never fulfill. It always seems like wishful thinking that is beyond the reach of ordinary South Africans.
That’s why it’s difficult to even talk about saving.
I know we all want to prepare for the day it will rain but we are also struggling with affording today so how do we even plan for tomorrow?
But, what if there was a way to do it?
What if you could enjoy your life today and still be able to keep Murphy out the door?
Well before you throw me out, let’s talk about your financial situation, the elephant in the room. First, we will talk about five simple things to do if you have no money to save. These steps should put you at ease and remind you that you actually have the power to do something.
Many South Africans fantasize about how to build an emergency fund in South Africa, but they never take any actionable steps.
How do I start an emergency fund with no money?
There are three simple things you should do.
- Make a zero-based budget.
- Look for ways to make more money, start here.
- Cut down on expenses temporarily until you reach your goal of a fully funded emergency fund.
- Downgrade your standard of living (by a cheaper car, get a roommate to help pay for the rent)
- Put a pause on buying clothes, shoes, and jewelry.
How much should I have in my emergency fund in South Africa?
Your emergency fund should have 6 months’ worth of your expenses. Go back to your budget and see which items are fixed and which are variable. Add those up per month and multiply it by six.
That number should be close to how much money you should be saving in your emergency fund. If there are other important line items add them to that number as well.
Remember that when it rains, it pours. So, there is no limit to an emergency fund. Save as much as you can for as long as you can. In fact, keep adding to this fund even after you have reached 6 months’ worth of expenses.
Now, let us talk about the thing that causes you sleepless nights unknowingly: your relationship with money. Understanding this is the beginning of a successful journey on how to build an emergency fund in South Africa.
What is your relationship with money?
1. I do not want to talk about money.
Me too, it’s a draining conversation and makes you feel uneasy. The money conversation has never been easy, and as times become tough, the conversations become even tougher.
So, it is understandable that you refuse to talk about money. But the fact that you are reading this tells me you are a little open to having a conversation about money, so that is a good start.
You are not completely avoidant or married to very strong ideas of not wanting to talk about money. That is the best attitude to have when thinking about how to build an emergency fund in South Africa.
2. I get anxious and start sweating when I think about money.
It’s not just you. In fact, many parents and couples experience the same thing that’s why money conversations in families are very rare if ever anyone talks about them.
You feel anxious talking about money because you feel that you are not in control. And the truth is that if you feel out of control you are probably out of control.
Anxiety means that things are not the way they should be. Many opt to bury their head in the sand to protect themselves from these anxious feelings.
Do some self-reflection, why do you feel anxious about money?
Once you honestly evaluate your reasons, you have solved half the problem.
3. I never have enough money, ever.
You have things you want to do and all of them need money.
Whether you want clothes, new makeup brushes, warm winter clothes, new kitchen towels, wooden kitchen boards, bedding, skin care products, tires for your car, school uniform, stationery, money to study towards your passion, or just a simple lunch, all these things need money.
It’s no wonder you feel that you never have enough of it. You always realize that there is more month at the end of your money, and you have to dip into your credit card and borrow money from loan sharks.
This scarcity mindset also affects how you manage money. It also affects whether money is naturally drawn to you or removed from you.
4. If I never look at my finances then I will never have to worry.
What you do not know will not hurt you.
That kind of thinking allows you to create an alternate reality that only you live in. It’s stress-free and you get to keep your sense of peace.
But is that peace real or it’s a figment of your imagination? Not many dare to face reality, but those who do find real financial peace.
Ignorance is not bliss, darling.
5. I love learning about money.
Knowledge is and has always been power. Equipping yourself with the right tools makes you lethal. You become a powerful force to be reckoned with.
Being in love with knowledge means you invest your time in making yourself a better person.
Learn as much as you can, but the trick is to apply it. You can only learn so much until you have to implement what you are learning. Get your life jacket, board the ship, and be prepared for whatever may come your way.
Analysis paralysis is a real thing, so as you seek and consume knowledge remind yourself that the actual power lies in implementing and putting what you learn into practice.
6. I make a lot of money I do not need to budget.
How the mighty have fallen.
Making money and keeping money are two different things.
You want to be the master of keeping money after you have made it. Many people work in industries, and they make bucketloads of money.
Do not get me wrong making money is the foundation of wealth.
Let’s demystify this, budgeting is not only for low-income earners or the middle class, but also for everybody. Telling your money where to go is the key to building generational wealth.
It allows you to have a solid plan to get to where you want to be. Remember if you do not plan, you plan to fail.
Avoid being paycheck-rich.
Now that we understand your thinking around money we can talk about how to build an emergency fund in South Africa.
How to build an emergency fund in South Africa
1. Decide how much you need to build an emergency fund.
You need a detailed financial plan if you want to build savings for future emergencies. Decide what amount you are comfortable with. Break down the lump sum into smaller portions so that you can decide how much you can save daily, weekly, or monthly to be able to reach your target.
Think about what could constitute an emergency in your life and plan accordingly.
2. Where can you invest your emergency fund?
Putting money away is not enough, you need that money to work for you. If you put it away without earning interest then inflation will devalue your money.
Research a high-yield savings account so that your money is put to work.
3. Define what an “Emergency is”.
The latest iPhone is not an emergency if your old phone still works. That limited edition item you want to buy is also not an emergency.
Categorize what you define as an emergency and only touch the money if that happens.
Geyser bursts, tire punctures, or death are serious emergencies.
If you do not define an emergency then everything becomes an emergency and you will keep withdrawing from that account until it is empty.
Anything and everything will lead you to touch that money.
4. Cut down entertainment, temporarily.
Now for the real tips. Cut down entertainment for a particular period until you have reached the target that you set for yourself.
This will require self-discipline and determination. But anything concerning money needs you to be focused and that’s why we set goals.
Find interesting things to do at home and for a few weeks or months focus on that. You will be surprised by how many free things you can do if you look for them.
Yes, this may be difficult to do but if your focus is how to build an emergency then you need to be ready to go the extra mile.
5. Do a no-spend month.
Part of being focused is realizing that you need to do everything you can to avoid money leaving your account by all means necessary.
A no-spend month allows you to avoid spoiling yourself and rather save that money.
All about delayed gratification.
We have many tips on how to do a no-spend month, it’s easy.
Final thoughts.
The journey of how to build an emergency fund in South Africa is long and it requires making sacrifices. I know that South Africans have more tips on how to save money and build an emergency fund, please share ideas with the rest of our community in the comments section.
Let us help each other make the world a better place.
