Wed | Oct 17, 2018

Growth & Jobs | Financial planning important to independence

Published:Tuesday | March 20, 2018 | 12:00 AM
Rose Miller, grants manager, JN Foundation who leads the Be Wi$e financial empowerment programme.

Rose Miller, grants manager at JN Bank and lead of the JN BeWi$e financial empowerment programme, says that financial planning from an early age is critical to securing one's financial independence.

"The sooner one starts making a financial plan, the more control that person will have over their money and future plans," Miller said.

She pointed out that building solid financial habits, especially during one's 20s, is critical for long-term success, and that establishing an emergency fund is a necessary building block for financial stability.

An emergency fund is money set aside to cover the financial surprises that life throws your way. The purpose of that fund is to establish your financial security by creating a safety net that can be used to meet unexpected expenses and to reduce the need to draw funds from high-interest debt options such as credit cards or unsecured loans.

"Consider it as a financial cushion. An emergency fund should cover at least three months of your living expenses. This fund will enable you to take care of unforeseen costs using cash saved specifically for this purpose instead of getting into debt," she advised.

 

CREATE EMERGENCY ACCOUNT

 

Jacqueline Robotham, business relationship and sales manager at JN Bank, recommended that everyone aim to put away at least five per cent of their monthly income in an account dedicated to emergencies.

"Therefore, if you earn $100,000 per month, you can save at least $5,000 from each pay cheque for emergencies. This might sound like a small amount. However, if you are consistent arnd deliberate, over time, you would create a solid safety net that you can rely on in a crisis," Robotham pointed out.

She further said that the best place for an emergency fund is in an account that is accessible. However, it must be kept separate from a bank account that is used daily so that there is no temptation to dip into your reserve.

"Your emergency fund could be kept in a regular savings account which provides some interest on your deposit, and from which your emergency funds can be withdrawn at any time without penalty," she explained.

 

... Emergency fund only for 'what ifs'

 

Jacqueline Robotham, business relationship and sales manager at JN Bank, says that an emergency fund should be separate from one's investments or savings.

"This is your 'what if' money. What if I have a health scare, what if something happens to a loved one, or what if I'm suddenly without a job? This is your safety net."

The JN Bank business relationship manager also advised that prior to venturing into intermediate or long-term investment vehicles, the establishment of an emergency fund is recommended. This is the first step towards creating stability and minimising risk.

"Since emergencies can occur at any time, it is strongly recommended that your fund is established prior to other forms of savings. Therefore, it is wise to create your safety reserve before you start saving for a home or a motor vehicle," she explained.

Situations for which an emergency fund may come in handy include loss of a job, a medical or dental crisis, unexpected home repairs, car repairs, or unplanned travel expenses.

Rose Miller, grants manager at JN Bank and lead of the JN BeWi$e financial empowerment programme, added that persons should always aim to rebuild their emergency fund once the money is used so that they are ready for the next possible crisis.

The JN grants manager also recommended that money in the emergency fund should not be used to take care of periodic expenses that are not emergencies such as school fees and car insurance; those costs should be in your monthly budget.

"You are aware of these annual expenses. You know the school fee is to be paid each term and your car must be insured every year, hence, they are not surprises or emergencies. These expenses should be part of the regular budgeted items that you consistently save to meet," Miller said.

 

Tips for building an emergency fund

 

- Set a monthly savings goal: This will get you into the habit of saving regularly and will make the process less daunting.

- Start small and build up your discipline: One way to do this is to automatically transfer funds to your emergency fund each time you are paid.

- Save your unexpected income: When you receive bonuses, raises, NHT refunds, or retroactive payments, use those funds to boost your emergency account.

- Identify supplemental income: If you have the time and willpower, seek a second job based on your skills or sell unused items from home to accumulate more money for your emergency fund.

- Assess and adjust: If there's money left over from your budget at the end of a pay period, move some of it into your emergency fund. If there's no money left over, then you should re-examine your expenses. Determine which elements of your monthly budgeted spending you can trim, and you'll have cash left over to build your emergency fund.