An emergency savings fund is a financial safety net that helps cover unexpected expenses, such as medical bills, car repairs, or job loss. It should be sufficient to cover three to six months’ worth of essential costs.
However, many people find it impossible to save money while managing daily expenses. South Africa’s poor savings rate – one of the lowest in the world – can be attributed to the high cost of living, low financial literacy, and a culture of relying on credit.
DebtBusters’ Debt Index for Q4 2024 shows that South Africans who applied for debt counselling during the period had 42% less purchasing power than in 2016 (when DebtBusters first started analysing data). They had unsustainably high levels of unsecured debt, and debt-to-income ratios were at their highest-ever levels among several income bands.
“Growing a savings fund may feel like a distant dream when money is tight, but it functions as a financial safety net,” says Sarah Nicholson, operations manager of JustMoney.co.za, a platform that helps South Africans make good money choices.
“Without savings, an unanticipated expense can derail your budget and force you into debt. You may have to rely on a credit card or high-interest loan, which can lead to long-term financial strain.
“On the other hand, if your car breaks down and you need R8,000 for urgent repairs, an emergency fund allows you to cover the cost immediately. Similarly, if you lose your job, savings can keep you afloat while you search for new work.
“An emergency fund provides financial security, reduces stress, and helps you stay in control of your money. Unexpected setbacks don’t turn into financial crises.”
According to Nicholson, it’s possible to build an emergency fund with the right mindset. Here’s how:
- Start small. Be consistent, even if you put away only R50 or R100 per month. Set a realistic goal for your first milestone, such as R1,000, and gradually work towards it.
- Choose the best savings option. Consider a high-interest savings account or a flexible fixed deposit account that offers competitive interest without tying up your money for too long. A savings wallet – a separate account within your main transactional bank account – is another means to set money aside for a specific goal, while offering easy access.
- Automate savings. Set up a monthly debit order, or schedule a transfer to a separate savings account, to be activated when your salary is deposited.
- Cut unnecessary expenses. Do you have subscriptions you barely use? Are you buying takeaways too often? Redirecting a small portion of these expenses to your emergency fund can make a big difference over time.
- Use windfalls wisely. Whenever you receive money unexpectedly – such as a bonus, tax refund, or birthday cash – consider putting some aside.
- Boost your income. Consider a side hustle, such as online tutoring; or setting up a small business, selling unwanted items, or renting out unused space.
- Take advantage of discounts. Special offers and loyalty programmes can help you save money, which you can allocate to your emergency fund.
- Reduce utility bills. Cut electricity and water costs by being more mindful of usage.
- Join a savings challenge. This is a structured, goal-driven way to encourage consistent saving by following a specific plan over a set period. For example, the 52-week savings challenge involves saving a larger amount each week, starting with R10 in week one, R20 in week two, R30 in week three, and so on. Another popular challenge is the no-spend month, where you buy essentials only, and redirect the savings into your emergency fund.
- Avoid dipping into savings. Only use your emergency fund for genuine emergencies. If you’re tempted to use it for non-essential purchases, remind yourself of its purpose – to provide financial security in tough times.
- Fine-tune your savings goals. Once you’ve reached your first savings milestone, set a new one.
“Building an emergency fund on a tight budget requires discipline and patience, but it is achievable,” says Nicholson. “Starting small, cutting unnecessary expenses, and making saving a habit can result in substantial growth over time.
“Creating a savings fund isn’t just about having money in the bank. It’s about peace of mind, knowing that no matter what life throws your way, you’re better prepared to handle it.”
JustMoney.co.za is a trusted voice within the personal finance sector. The JustMoney platform offers articles, money management tools, and various financial solutions and services. Join more than 700,000 South Africans – subscribe to access your credit score for free, and benefit from a range of personalised solutions. Register here.
