By Qiniso Ntuli
It is three months into the new year and you are either still going strong in terms of your new year’s resolutions or you have discarded the new goals after a brief stint. One of the most common resolutions is attaining financial independence.
Various definitions of financial independence exist, from ‘the state of having sufficient personal wealth to live, without having to work actively for basic necessities” or “having sufficient income to meet your monthly expenses”. In my view, being financially independent means having a financial plan that caters for emergency funding, saving for your financial goals whilst you have made sufficient arrangements for your retirement, healthcare, insurance needs and growing your wealth over time. Financial goals can include saving for a child’s education, a car, house, holiday or just building an investment portfolio.
Assuming that you have made provisions for the core needs (retirement, medical aid, insurance, let us discuss emergency funding.
A good starting point is budgeting; this allows you to understand where your income is being spent and how much income you have left to spend. Knowing beforehand what your disposable income is allows you to be more conscious of how much you are spending on entertainment, clothes etc. What most people do not take into account is the what if question. What if I lose my job? What if I my business goes through a rough patch? What if I am temporarily without income? How many months would I be available to cover my expenses in such an event?
You can protect yourself from life’s unexpected turns by having an emergency fund in place that is easily accessible. Your personal circumstances determine the size of your emergency fund, and industry experts suggest that you should have enough money in this fund to cover anything between six months to a year of your expenses.
Residential Expenses: Include savings in your emergency fund for housing expenses, insurance and utilities.
Living Expenses: This may include anything from food to household supplies.
Healthcare: Include the cost of your medical aid into your emergency savings fund as well as extra in preparation for unforeseen medical emergencies.
Debt Repayment: Monthly repayment amounts for credit cards and other debts should be included into your emergency savings fund.
Remember to only make use of your emergency fund in case of emergencies and not for unnecessary purchases and frivolities.
The above mentioned are merely suggestions on items you need to save for in your emergency fund, you have your own personal circumstances and should apply your emergency savings total to your own unique needs. Consulting with an independent financial advisor is the first step to attaining financial independence. A financial advisor will give you a snapshot of where you are financially but also make you consider the short term (emergency funding) whilst making provisions for your longer term financial goals in life.