Stats SA reports that South Africa’s national savings rate (government, corporates and households) is 0.5% — this is the amount spent on savings after consumption. The household savings rate is even lower at 0.2%, and less than 36% of South Africans are spending more than 10% of their income on saving, investing and insuring. 

The cost-of-living crisis means that having access to emergency savings has never been more important. 

Doret Jooste, head of money management at Standard Bank, says the key is making the decision to start saving and then automating the process.

“While the rule of thumb is to ideally have the equivalent of three to six months of your monthly salary in an emergency fund, everyone has to start somewhere. Instead of worrying about the big amount you need to work towards, just start small and stay consistent,” she says.

Jooste advises automating your savings so that it doesn’t have to be a conscious decision every month. This also ties into the notion that you should pay yourself first. It is not uncommon to put off saving as the last thing on your list, only to find that you have spent all your money and there is nothing left to save.

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. You also want capital protection, so the savings vehicle should be a low-risk one. Financial products that you could use would include bank investments, money market funds and possibly your home loan.

If your salary increases, then you need to increase the amount you have available in your emergency fund. You could use this money, for example, to pay the excess on your short-term insurance if you are in a car accident or for an unplanned flight if a family member far away dies.

Eat the elephant one bite at a time

At a time when most are battling just to make ends meet, the thought of saving may seem like a pipe dream. Jooste says making small adjustments to your budget or your spending patterns can free up small amounts that eventually add up. 

“Look at those R90 debit orders that you don’t need or the money you spend on eating out every month. R100 here or R40 a week adds up, and before you know it, you will have freed up funds that can go towards your savings,” she says.

She adds that having a short-term savings goal can help keep you disciplined when you find yourself tempted by the latest sale or that new pair of Nike sneakers you’ve been eyeing. DM