Life is full of surprises, unfortunately not all of them good. While you can’t predict everything that may happen, unexpected problems are easier to deal with when you’re financially prepared.
Marlies Kappers, head of marketing at DirectAxis Financial Services, says the first thing to consider is what one can realistically and affordably insure against.
These will be events that are difficult or impossible to recover from financially if you’re not insured. They could include one’s home burning down, one’s car being stolen or written off in a crash or a long hospital stay because of illness or an accident.
One can, and many people do, insure against all or most of these things either because they’re required to when they take out the bond to buy a house or get a loan to buy a car, or because they see the sense in insuring an expensive asset. Many employers offer medical aid or a hospital plan as part of a salary package.
But what about life’s more common upsets, such as when an essential appliance, such as a freezer or oven stops working, a car breaks down or a toilet or pipe gets blocked?
Kappers says research shows very few of us have enough saved to deal with this sort of problem, which can be very disruptive, although easier to manage if one has an emergency fund.
“Having money set aside makes it easier and less stressful to deal with unforeseen problems and means you aren’t forced into decisions you may later regret,” she says.
Here’s what the experts say:
1. Getting started is the hardest part. Ideally, one should aim to save about 5% of one’s income each month for unexpected expenses.
2. Keep one’s emergency fund in a separate account, so we’re not tempted to dip into it. Money market and tax-free savings accounts are two options to consider. Ideally, set up an automatic transfer.
3. Keep saving until one has enough to cover normal household expenses for between three and six months. That way one’ll have a reasonable cushion.
4. If one needs to use all or some of the money, try to cut back on non-essential expenses, such as entertainment or holidays until one has replenished it.
To find out more about planning for life’s less pleasant surprises and how to better manage your money visit: https://www.directaxis.co.za/make-a-plan/learn-how-to-manage-money
