The 21-day temporary ‘lockdown’ resulting from the Covid19 has put a lot of negative pressure on everyone, especially businesses nationwide. Even with the measures government has introduced to protect workers and small, medium and micro-sized businesses (SMEs), independent contractors and informal sector workers will be particularly vulnerable. This brings the need to foster a culture of saving into sharp focus.
Head of Marketing at short-term lender at Wonga, James Williams says, “Many people in South Africa live from hand to mouth without a financial safety net to keep them afloat in tough times. To manage financial hardships, one ideally should have access to an emergency fund. This is a readily available source of money to help one cope with financial dilemmas such as a loss of income or a debilitating injury or illness.”
If you’re don’t have an emergency fund already, here are some tips why you should consider them for future emergencies and times of crisis.
How much should you have saved for emergencies?
At the very least, an emergency fund should consist of enough savings to meet your monthly expenses for three months. Ideally people should aim to have three months of their salary or income in savings in the event of an emergency. This will help them to self-fund essential living costs like rent or mortgage payments, food and utilities as well as day-to-day expenses. It will also ensure that they are able to meet their monthly debt obligations without falling into arrears and compromising their credit rating.
“This may not be feasible under the current lockdown but, when things return to normal, it’s a good idea to set some money aside each month for savings. Every bit you save will help in the event of an unforeseen loss of income, and will help you break the habit of living from hand to mouth”, says Williams.
Where should you keep your emergency fund?
The trick is to put money into a separate interest bearing savings account as soon as one gets paid each month. A direct debit is the most effective way to ensure that the right amount is automatically set aside each month.
People should aim to put their money into an account that has an interest rate that is either equal to or more than inflation. Look for an account that offers an interest rate of 6% or more otherwise your savings may actually lose value over time. A standard savings account or a tax free savings account are good options because they allow one to access money immediately in the event of an emergency.
What to do if you don’t have an emergency fund and the lockdown threatens your regular income?
A total of R30 billion has been allocated to a special National Disaster Benefit Fund. This will pay monthly Unemployment Insurance Fund benefits of R3 500 to qualifying workers whose income has been impacted by the COVID-19 crisis, for up to three months.
The government is also establishing a fund to assist small businesses. Businesses wanting to apply for funding assistance must be 100% owned by South African citizens, employ at least 70% South African nationals, and must be registered with the South African Revenue Service (SARS) and tax-compliant. To access the fund, businesses are required to register on the SMME South Africa platform.