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What would happen if you lose your job or your car breaks down and needs major repairs? What if you need to move or face a large medical expense you didn’t foresee?
Being prepared for the unexpected is an important component of your financial wellbeing. It’s also better for your mental and financial health to plan for such eventualities.
An unplanned expense can easily tip you into financial hardship and debt, and undo all your gains in managing your finances.
Putting money aside for an unexpected cost isn’t easy, especially when you don’t know what it’s for. But the alternative – potential debt and financial insecurity – may be enough to motivate you to take action.
This can vary according to your current income, financial situation, and whether you have insurance to help cover emergencies.
While estimates vary, experts generally recommend building up enough savings to cover at least 3 months' essential expenses. This should cover you in an emergency and allow you enough time to get back on your feet.
It may feel daunting to change spending habits formed over many years, but there are simple and practical steps you can follow.
Sell unwanted possessions – why not reduce clutter and make extra cash using classifieds sites like Dubizzle?
This can help you track your progress and measure your success. Once you’ve put money aside to cover at least 3 months’ expenses, you can save for any other goals, like a holiday.
Discuss your emergency fund and savings goals with your loved ones. Explain why it’s important. Sharing your goals can also help you to stay on track.
Avoid the temptation to spend your emergency fund. Transfer it to a savings account to keep it separate from your day-to-day spending.
Instead of trying to save what you have left at the end of the month, set up an automated transfer to your savings account on payday. That way, you won’t risk forgetting to transfer the money and also know how much you have left in your current account to spend.
Some months may be tough and it may not always be possible to put away the same amount of money. But instead of feeling disheartened, try to put away what you can. No matter how small, these amounts will add up and build a valuable emergency fund over time.
Learn more about how to save money.
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