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Many people know the importance of building an emergency fund, but few are able to do so successfully. Just over half (52%) of South Africans say they are saving for an emergency, while only 19% would be able to survive for three months if they were to lose their income, according to a new survey by Budget Insurance.

Not only are people unprepared for emergency expenses, but most households would struggle with an unexpected R10,000 expense. These findings indicate that few people have invested in either a rainy day budget or an emergency fund, relying instead on loans and credit card debt when unplanned expenses pop up. 

It doesn’t have to be painful to build a rainy day budget or an emergency fund. We’ll walk you through a few tips to illustrate how to save money, as well as provide a budget calendar to help you stay on track with your savings goals. 

What is the purpose of a budget?

A rainy day fund is slightly different than an emergency fund, but the two often get conflated. An emergency fund is something you can draw from to pay for smaller expenditures – if a major appliance in your house needs to be replaced, or if your child needs braces, for instance. An emergency fund is important to have to avoid going into debt to cover small inconveniences that will pop up and disrupt your careful budgeting. 

A rainy day fund, on the other hand, is your safety net in the event of a big financial emergency; loss of employment, illness, or a global recession, for instance. Most experts recommend building a rainy day fund with at least six months’ take-home pay, e.g., your paycheck less taxes and other obligations for benefits and retirement. 

How much do you need in your rainy day and emergency funds? The numbers vary depending on your living expenses and income level. “To cushion against a simultaneous spike in expenses and dip in income, a middle-income family needs about  R90,000 in a rainy-day fund . Lower-income families need about R48,090. 

Typically, an emergency fund is smaller: between R5,000 – R10,000. There’s no amount too small to start with when you begin saving money. Start somewhere, and make saving a habit – here’s how.  

How to save money

If you’re living on a shoestring budget, building both a rainy day budget and an emergency fund can feel daunting. Most experts suggest focusing on your existing expenses first.  

“Creating a rainy day savings strategy starts with getting a handle on any future expenses. For most people, monthly expenses such as house payments, utilities, insurance and groceries stay steady. Other costs are less frequent but not technically emergencies. Make a list of the expenses you’ll probably have to pay in coming years. In addition to car maintenance or house repairs, this could include kids’ braces or veterinary bills,” wrote Nerdwallet 

A good way to track your expenses is to use a budget calendar. Use a budget calendar to log every bill due: from utilities to rent or mortgage to paycheck. Log each amount in your calendar to see what’s going out when.  

From there, you can start to estimate how much you need in your rainy day fund and in your emergency fund. For your emergency fund, The Balance recommends that you set a goal and then put aside a small amount each month. “Figure out how much money you’d like to have in your fund, then work backward from there. Divide the amount you’ll need to adequately fund your account by how much you can afford to put aside each month. Then, you’ll be left with the number of months it will take you to reach your goal.”  

When you first start out, you may need a little lift to help get your savings off the ground. Consider working with a community like LiftRocket.

This article is contributed by LiftRocket.

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