Saving for a rainy day – Jamaica Observer
People with a stable income stream should aim for 3-6 months of savings. (Photo: szefei)
What would happen if you lost an important source of income? Or did you have a sudden and unexpected expense? The novel coronavirus pandemic has taught us that our financial or economic situation can change in an instant. At the start of the pandemic, many families and even businesses were caught off guard. Restrictions have intensified and employers have bowed under pressure leading to job losses, leaving many households with little or no income. Simply put, utilities, groceries, healthcare, and other recurring expenses have been compromised.
In the first six to twelve months of the pandemic, many households had exhausted their savings and were hanging by a thread. This is when many people may have been tempted to dip into their investment or retirement account to make ends meet.
This predicament is exactly why consumers are encouraged to set up an emergency fund. An emergency fund, also known as a provident fund, is a personal budget set aside as a financial safety net for future accidents or unexpected expenses. This means it is separate from your regular savings and investments. It’s money you save for the proverbial rainy day. It might not be an easy thing to do, but it will come in handy when you need it most. An emergency fund can act as a buffer in times of financial shock or distress and allows you to be prepared for the surprises that life often brings.
Professionally, bankers recommend that people with a steady stream of income aim for 3-6 months of savings. If you are in an unstable job, or close to retirement, it is best to aim for 1 year.
Since an emergency fund should be easily accessible and liquid, it is recommended that you use a savings account. The alternative of putting emergency funds into stocks and bonds could cause the money to erode over time, if the value of your assets falls below its original price.
That said, there are some tips you can use to build a solid emergency fund. Below are some of the strategies recommended by the JMMB group.
– Know what you are saving for: All saving starts with goals. Determine your emergency fund goals and how much you want to save.
-Be consistent: Depending on your goals, determine an amount that you can commit to saving each month and stick to it.
-Start small: you may not have to break the bank. Start small and develop your discipline.
-Build it up with bonuses: When you receive bonuses, raises, or retroactive payments, be sure to use them to give your emergency fund a big boost.
– SAVE IT FOR REAL EMERGENCIES (& OPPORTUNITIES): Don’t use it for a party or family vacation. This is for real emergencies and opportunities only.
– Keep it separate: Don’t mix your emergency fund with your daily pocket money. Keep it in a separate account.
-Know your options: It’s understandable that sometimes “life happens”, which is why JMMB offers a payday loan solution as well as the JMMB Payroll Bridge.
As the world around us becomes more predictable, consider putting the necessary plans in place to ensure a healthy financial situation free of stress and bad debts.