Many South Africans still don’t know how to save and how to have short-term savings such as starting and maintaining emergency funds.
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Saving for a rainy day and for the future: Emergency and annuity funds
South Africans need to start cultivating a money management mindset and become proactive when it comes to their finances
Many South Africans still don’t know how to save and how to have short-term savings such as starting and maintaining emergency funds.
Image by pixabay
South African citizens, unfortunately, experienced economic shocks during and after the pandemic due to poor money management culture. Many South Africans still don’t know how to save and how to have short-term savings such as starting and maintaining emergency funds. They are also not proactive in terms of setting up long-term investments, which include retirement annuities. South Africans need to start cultivating a money management mindset and become proactive when it comes to their finances.
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What is an emergency fund?
An emergency fund acts as a buffer during times of financial distress or when there are unforeseen circumstances. It is a bank account where you save money strictly for emergencies. The money a person sets aside can be for small or large expenses such as medical expenses when something happens to one’s car or even unemployment.
The advantage of having these types of funds is that financially you can survive during tough economic times, such as when interest rates increase or there is inflation, you can stay afloat; even during the COVID-19 pandemic, those with emergency funds were always better positioned financially. Money management culture is about setting yourself up financially and ensuring that one does not feel financially burdened at any stage of the economy.
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How to get started
People’s finances differ; how much one should save in the emergency fund is entirely up to them. However, if you are unsure of how to start, you could save about 3-6 months of your living expenses. If you are a freelancer or have a temporary contract, it would need to be more. It should also differ from a personal bank account since you do not want to get tempted to use the funds in non-emergency situations.
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What is a living annuity?
These investments provide a person with income for the pension years. Once you exit the employment system, you can get paid for a living from your investment. In South Africa, these investments are restricted because of limitations around accessing them. However, they are more flexible than ordinary retirement investments. They can be invested in offshore markets, allowing investors to save more by getting income from more developed economies. They can also be paid out to beneficiaries should death occur.
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Why choose living annuities?
Living annuities are flexible investment types. Investors can control the amount of the pension payout that they want to receive. You choose a percentage of the capital balance of your pension fund and get paid accordingly. You are also able to choose the frequency of the payout of your money, and this could be monthly or annually. Lastly, depending on whether the investment is conservative or aggressive, you can choose assets that you wish to invest your money in.
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