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Complete guide to Emergency Fund in South Africa 2021

An emergency fund is money that is set aside for an unforeseen expense, such as a car breaking down, or a loss of income or other uninsured occurrences. An emergency fund is important to help weather the financial impact of unforeseen expenses.

How much should your emergency fund be in South Africa?

R30000.00 is the average you would need in your emergency fund in South Africa. However, it is important to note that the amount you need is largely dependent on your lifestyle. But as a rule of thumb, you should have at least 5% of your annual net income. 

When setting up your emergency fund, there are three aspects to determine: how much to save, how to reach your savings goal, and where to keep the fund. Building up an emergency fund should be considered as one of your first savings and investing goals. With the state of the South African economy, this is especially true for business people, entrepreneurs and contract workers.

Why should you have an emergency fund in South Africa?

While the main goal of investing is to earn money to be used at a later date, the goal of an emergency fund is to protect yourself in the present. Ideally, an emergency fund should have enough money to cover at least six months of your household expenses, or longer if you decide.

Your goal should be to maintain your standard of living without dipping into your investments, which could potentially disrupt future financial plans. To start, you can make a list of all of your monthly expenses, including rent or mortgage/bond, car repayments, groceries, and insurance. And don’t forget to list smaller expenses such as cell phones, electricity, water and other utilities.

Calculating how much you need

When you have created your list of expenses, total the amount and multiply it by six, or however many months you want it to last. This number is the savings goal of your emergency fund. While it may take time to reach this goal, don’t be put off by the effort required.

There is no better time to start saving than now. You may ask yourself, how do I start saving for my emergency fund? The first step is to reduce your spending. When you create your monthly household expenses, ask yourself if everything on the list is necessary.

You may notice that you’re spending an extra R200.00 a month on your Netflix or Dstv that you hardly watch. While R200 by itself might not be a large contribution to your emergency fund, every bit helps and adds up over time. A wise man once said, “if you can’t manage your cents, you won’t be able to manage your millions”.

After identifying unnecessary expenses to eliminate, the next step is to set aside a fixed percentage of your earnings each month. This amount will be different for every investor, but you should try to make each monthly contribution count.

Where to keep your emergency fund in South Africa?

RankingSavings AccountMinimum DepositInterest Rate
1ABSA TruSaveR50.004%
3African Bank MyWorld AccountR0.005.5%
3Capitec Fixed Term SavingsR10000.008.50%
4FNB Savings AccountR0.003.8%
5Investec Prime SaverR100000.00Prime Linked

You may want to consider creating a separate account solely for your emergency fund. Most banks will help you create an additional account and many can even automatically deposit a set portion of your salary directly into the account. Check out our article on best savings accounts for 2021.

Because emergencies can happen in the blink of an eye, money in an emergency fund needs to be liquid so that it can be accessed quickly. This means keeping it in an account where money can be withdrawn without incurring penalties.

Such accounts can include checking and savings offered by your bank. These both allow you to access your money at any time. You may also consider keeping funds in a money market account.

A money market account is very similar to a savings account, but with a few differences. Money market accounts typically have minimum balances that must be maintained and there are transaction limitations per month.

In return for these restrictions, you’ll have the potential to earn a higher interest rate on your money. A money market account can be a good long term option once you’ve reached your rainy day fund goal.

Though it won’t have the potential to appreciate as much as your stock investments, it’s not as susceptible to market volatility. If you haven’t yet established a rainy day fund, consider doing so today.

No one wants to get caught in a storm without an umbrella.

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Shephard Dube

Shephard Dube is the Co-Founder of Rateweb. He is a web software developer with a passion for personal finance, economics, stock market, blockchain and cryptocurrencies. He spends most of his time figuring out how organizations and governments can make the environment conducive for business owners and consumers.

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