July is National Savings Month. An initiative brought about by The South African Savings Institute -SASI, creating awareness over the importance of saving for all of us.
The starting point is to create a contingency fund for emergencies. This fund makes provisions for any emergency or unforeseen expenses. It can also be an access point for cash for a deposit on a car or to pay for that well deserved holiday. Especially deserved because you saved for it and didn’t have to borrow.
The fund should be built up to cover at least 6 months of your living expenses. This will also provide financial breathing space for you should you face a life-changing event such as – Death – Disability –Retrenchment – Hospitalisation
Separate funds for Spouses
With spouses, it is important to set up separate funds that allow each partner access to their own cash should the worst happen to either. This will create financial independence avoiding the risk of not having cash whilst an estate is being wound up.
Money market accounts ideal
The ideal place to save for a contingency fund is a money market account with your local bank. These accounts provide higher rates of interest than normal savings accounts often only needing a minimum balance to keep the account active. The funds are safe and available immediately earning reasonable rates that are keeping up with inflation.
Take advantage of the tax break
Each spouse should have their own current account linked to a money market account which will enable them to save and transfer funds easily as and when the need arises. Each taxpayer gets the first R23 800 (R33 500 if over 65) of their interest taxfree. So with the current rates around 7 %, spouses can save around R7 00 000 between them before paying anything to SARS.
Make savings an attitude
Saving is an attitude that aims for financial independence in the future. Life changing events occur sooner or later and having a fund in place for emergencies will provide an important building block for your plan preparing you for the unforeseen.