Setting aside money each month in a contingency fund provides homeowners with a financial safety net, allowing them to avoid disaster when unexpected situations strike. Picture: Pexels
One of the most crucial components of obtaining more financial independence is having emergency reserves in place, especially if you own your own home.
Now that interest rates have lowered and inflation has eased, homeowners’ budgets may have a bit more wiggle room to resume saving.
In September, The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) reduced interest rates. The repo rate was reduced by 25 basis points (bps), dropping from 8.25% to 8%.
“The MPC ultimately reached consensus on 25 basis points, agreeing that a less restrictive stance was consistent with sustainably lower inflation over the medium term,” Reserve Bank Governor, Lesetja Kganyago said.
Adrian Goslett, the regional director and chief executive of RE/MAX of Southern Africa, setting aside money each month in a contingency fund provides homeowners with a financial safety net, allowing them to avoid disaster when unexpected situations strike.
Goslett stated that unanticipated damage to the house, such as roof repairs or rising moisture, can occur at any time, as can financial difficulties that affect homeowners, such as job loss or a pay cut.
In either case, having an emergency financial cushion can help you avoid incurring further debt.
“Regularly putting money aside for a rainy day can be challenging, but the consequences of not having a financial cushion to fall back on can act as a useful motivator.”
Goslett suggests that homeowners save at least one month’s salary.
“In an ideal situation, three to six months’ income in savings is preferable. That said, saving up half a year’s worth of income is not an easy thing to achieve and will take a long time. Setting smaller goals can help you maintain focus and stay motivated,” he said.
When opening a long-term savings account, selecting an interest-bearing alternative that is different from your regular banking to prevent the temptation to use it for non-emergency purposes.
Interest rates might change between accounts, so it's critical to compare numerous options to discover the one that provides the best return.
High-interest accounts frequently force you to lock your money away for a set length of time, which might be problematic if you need fast access in an emergency.
However, this function can be useful if you struggle to resist spending money that is readily available.
Goslett recommended setting up a debit order or automated payment every month to avoid making it voluntary.
“If a predetermined amount of money is transferred into a savings account automatically each month, it takes the decision-making process out of the equation and ensures that a contribution is made towards the contingency fund regularly with very little effort on your part.”
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