First published in the Daily Maverick 168 weekly newspaper.
If there’s anything the past 18 months have taught us, it’s the value of having an emergency savings fund.
Typically, this money would be for “emergencies”, such as your car breaking down, or for unexpected expenses. In the past year, however, emergency savings have been called on all too often because of retrenchments or businesses closing down.
The recent looting and violence in KwaZulu-Natal and Gauteng have not helped.
According to the eThekwini Economic Development and Planning Committee, about R1.5-billion was lost in stock, and more than 50,000 informal traders have lost their livelihoods. There was a R15-billion loss to property, a further 1.5 million people lost their potential to earn an income, and there are about 150,000 jobs at risk.
Traditional advice has been that you need the equivalent of three to six months’ salary in your emergency savings fund. The reality is that most people baulk when presented with this goal and end up not saving towards an emergency fund at all.
The key thing to remember is that having an amount equivalent to three to six months of your salary is the end goal and not the starting point.
Ester Ochse, product head at FNB Money Management, says the urgent need for South Africans to become more committed to saving is illustrated by data that shows how few people are in a financially resilient position.
“Our internal research has revealed that fewer than 7% of FNB clients have enough money saved up to be able to cover living expenses for three months if they were to suddenly lose their income,” Ochse says. “This is across our client base and we believe that it is a good proxy for the country.”
Himal Parbhoo, chief executive of FNB Cash Investments, says the vast majority of the more than 12,500 FNB customers who use the bank’s goals-based savings application want to save up money to help them in an unforeseen emergency.
He says this shows that South Africans are increasingly understanding the importance of saving as a way of securing their financial resilience. But the challenge for many people is still figuring out how to find the money to save, and where it is best to save it.
“The idea of having enough money saved to cover three months of expenses can be so overwhelming that it prevents you from even starting to save,” he says. “But even if you only have a few rands to put aside every month to begin with, what matters most is that you take that first step and start saving.
“It’s very motivating to see your money grow and, before you know it, you’ll be finding other ways to free up more cash to further grow your ‘nest egg’ and achieve the financial resilience you desire.”
Nelisiwe Mbara, a certified financial planner at Alexander Forbes, says if you have no idea about your financial situation, or do not want to face up to your reality, it makes it even harder to plan your finances because you do not have a clear starting point.
“Start by identifying and dealing with your current money savings techniques, and identify areas that need more attention and work on those areas. This mostly speaks to your emotions towards money – how you handle money will determine how money works for you,” she says.
Chris Tisdall, head of direct and private clients at Allan Gray, says the best way to establish discipline is to decide how much you need to invest and then set up a debit order to your preferred product.
“You should do this as soon as you start earning a consistent income. It is critical that you adjust your debit order regularly to account for the impact of inflation on your money, and as you step up in life,” he says.
TymeBank executive Linda Appie says a recent TymeBank More Month Than Money study showed that 59% of women run out of money before the end of the month, compared to 56% of men. Black women are the most likely to do so, with 64% affected.
There are several ways to go about setting up an emergency fund. One of the key attributes is that your money should be easily accessible because the definition of an emergency is something that happens without warning.
Financial products that you could use include bank investments, money market funds and possibly your home loan.
Shop around between banks, to see which investment will give you the best return.
You can start with a simple savings account and, as your savings grow, transfer the money into a higher-earning savings vehicle, such as a seven-day notice account that will have a minimum balance opening deposit. For example, the FNB seven-day notice account has a minimum opening deposit of R20,000.
Finding out what banks offer
DM168 deliberately did not contact any of the banks directly, but used the information on their websites, which would be accessible to any potential saver. We wanted to show exactly what any ordinary South African wanting to open a bank savings account would experience.
The table shows what we found. We looked at savings accounts that offered immediate access or the quickest access, with the lowest minimum opening balance. For Absa, we could not find any savings account with immediate access, and the shortest access was 32 days.
Nedbank was the worst. There seemed to be only three options – a tax-free investment or two other group savings options aimed at clubs or stokvels. None of these were suitable – we were looking for an individual savings account with quick access. A tax-free savings account is typically tied up until you retire.
Nedbank did include an option for partial withdrawals (at a minimum of R50) with 24 hours’ notice, but it did not mention the tax implications of these withdrawals.
We excluded Nedbank from the table on the basis that we were not able to find a savings product that matched our requirements.
Overall, TymeBank emerged the winner with easy access, low opening requirements and the highest interest rates. The only catch is that their GoalSave account has to be linked to a transactional account. DM168
This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.