Borrow Sensibly

Life doesn’t always go according to plan, so building an emergency fund can give you the financial buffer you need, when you need it.

Getting retrenched or contracting a severe illness or injury can negatively impact your financial situation, even when you have insurance in place. By setting aside a certain sum every month for an emergency fund, you can cover your daily expenses without needed to borrow straight away. Here are some of the considerations to bear in mind when setting up an emergency fund.

Figure out how much you’ll need

The rule of thumb is to set aside a minimum of one month worth of expenses for your emergency fund. Look at the fixed expenses in your budget to work out how much you will need to cover your obligations. Then consider how much money you’d need to save in order to maintain your current lifestyle without having to borrow.

What counts as an emergency?

What does an emergency mean to you? Is it losing your job? Perhaps it’s the passing away of your partner? Whatever it is, you need to acknowledge what it is that would force you to tap into your emergency fund, and make a mental rule not to do so unless it’s one of the scenarios you planned for.

Make a forced saving

An emergency fund is different to a rainy day savings account that you dip into whenever you haven’t accounted for a surprise expense, so treat that money differently and have a separate account for real emergencies.

You can set up an emergency fund with a scheduled payment into a new account. If you use the NBF Direct Online Banking or App and have a Max Saver account, you can set this up using the standing instruction facility.

Make regular top ups

If you’re lucky enough to not have to use your emergency fund, it’s worth topping it up from time to time, so that it doesn’t shrink and keeps up with your lifestyle.

Regularly assess your emergency fund and make sure that it’s tracking along with your changing circumstances. What was four months’ worth of expenses a year ago may no longer be enough.