Posted on Dec 21, 2020 by Staff Writer
The personal, social and economic impact of COVID-19 is unlike anything experienced by the world in the past 75 years. This epidemic has put a lot of South Africans in a financial disaster. It is even worse on families of two or more people with children involved.
Today, South Africa is on its fourth week of an extended nationwide lock down. Even though its meant to end on April 30, there are chances for further extension.
Our lifestyles have drastically changed within these four weeks. A lot of people have been laid off, some are not sure if they still have their jobs because even employers have been hit hard by the economic effects of covid-19.
While we do not know when this confusion will end, we still have financial commitments to meet. Posing a common question to most bread winners; ‘should I start using my emergency funds’?
Firstly; what is the purpose of having emergency funds?
The purpose of emergency funds is to help you stop adding to your debt with every financial bump in the road. As the name suggests, emergency funds are used to cover the things you don’t budget for, like medical costs, car repairs or to cushion the period of job loss.
Usually, your emergency fund savings should be big enough to cover 3 to 6 months of your living expenses. That will help you get through the first few months of a job loss or medical set-back. Financial experts advise that you go a step further by building up an emergency fund that covers 6 to 12 months of expenses.
The whole purpose of having emergency funds is to help you when ever there is an emergency. Therefore, you shouldn’t be afraid to use it when you actually most need it, which could be right now.
It is common for people to save up for an emergency, and then get into a dilemma weather it’s the right time to use these funds when faced with a financial crisis. Look at it this way; on Tuesday evening, President Ramaphosa addressed on an “extraordinary coronavirus budget” of R500 billion which amounts to 10% of the country’s gross domestic product.
Of which, around R130 billion of the amount has been reprioritised from the National Treasury’s current budget. No one anticipated the covid-19 outbreak, therefore all its effects were not expected. This is surely an emergency, and can be reason enough to use of your emergency funds with clear conscious.
You might want to know how to start using your the funds by following steps that will allow you to make well thought financial decisions. Also, help determine how you can really tell whether it’s time for you to use your emergency fund?
When to use your emergency funds?
Before using your emergency funds, it is important to ask yourself these three questions to make sure you’ve got a real reason to use the funds.
- Is it unexpected? – Is it a job loss, Emergency medical expenses, damage to your home…?
- Check if its absolute necessary? – Most of us would say we know the difference between a want and a need. But sometimes the line between the two gets a little blurry. For example, self-care is important. But a weekend getaway isn’t necessary. Don’t use your emergency funds on expenses you can do without.
- Is it urgent? – In cases where you have to pay for an expense, it is important to determine whether the payment is urgent. If it is possible to delay the payment then you have to delay it. Delaying some payments will help you save your emergency funds for rainy days. Remember, we all do not know how long it will take for the economy to be back on its feet.
Have you taken advantage of all the available relief structures?
There is a long list of financial aid that has been put in place to help South African businesses and individuals through this crippling coronavirus-induced economic crisis. It is advisable to utilize the eligible benefits provided for you before using your emergency funds.
In a case where you have been laid off from your job, you can apply for the unemployment relief fund. The government has extended its hand through the Unemployment Insurance Fund (UIF) and called on companies to apply on behalf of employees.
You will have to follow up on your employer to ensure your application has been filed. It is good because even non compliant employers can still apply for their employees.
There are many measures available to help South African businesses and individuals get through a crippling coronavirus-induced economic crisis.
Government has introduced numerous ways to assist, from UIF claims, repayment holidays, credit insurance and food packages are some of the options open to individuals.
If, after utilizing all these financial aids and relief, you still have some necessities to pay for, then it’s probably time to use your emergency cash.
What to do if you don’t have an emergency fund?
Apparently, more than 52 percent of South Africans do not build up emergency funds, let alone have savings account. Should you find yourself without any emergency funds to mitigate your situation, then you will have to do lots of budget adjustments.
Like everyone else, you have to utilize all the available help granted by the government and other solidarity funds. Put a stop on unworthy spending, start buying inexpensive food staff that can last long and cut on entertainment spending.
Regardless of your specific financial situation, be prepared for COVID-19 and its financial implications to last for a while. Save as much as you can right now so you can safeguard your finances for the months to come.
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