Personal financial management has become a skill I confidently brag about amongst my friends and colleagues; often sharing tips on how to become financially savvy and making my money work for me. At a glance, many would definitely agree with my bold claims of being financially savvy and managing my finances exceptionally well. But little did many know of the financial mistakes I continue to make on this journey towards financial wellness.
It was on an ordinary Tuesday morning, 7 am on my way to work when suddenly I heard a rattling sound coming from the back of my car. Scared and a little shaken up, I decided to stop at a nearby garage to assess the situation. To my utter dismay, the back tyre of my car was shattered in unrecognisable pieces. I was devastated and paralysed for a while… “I am going to be late for work” a small voice kept saying. Immediately, I rushed to pull out the spare wheel from the boot, only to find the spare wheel in poor condition to sustain me till I can afford to replace the damaged tyre. The reality suddenly hit home; the reality of having to buy two brand tyres for the car. Yes… this was a cost of LSL2 000 (equivalent of R2 000) I had not budgeted for.
According to Babiarz and Robb (2013), emergency savings serve as buffer against unexpected economic shocks such as unemployment, unanticipated medical costs or significant but necessary expenditures on a home or vehicle. Research has found that many households do not have savings for emergencies, where the inability to meet these unexpected expenses results in undesirable outcomes such as under paying monthly expenses, missing loan instalments, using temporary overdrafts or credit cards in an attempt to cater for the emergency.
I’ve attended several financial education seminars where the message of saving for rainy days has been re-emphasized many times. My biggest mistake was procrastinating after the seminars and not applying the principles I’ve learnt. The second mistake was the excuses many of us tell ourselves “I cannot afford to save now”; “I will save after my next salary review”; “I will make a plan when it happens”.
The cost of my procrastination was a bill shock of LSL2 000 plus interest of 14.75% on a temporary overdraft to replace two tyres. This is an expense I could have easily mitigated by saving for emergencies I know could happen any day on a month to month basis. At a glance, LSL2 000 plus 14.75% may seem affordable, however what if the emergency is a burst geyser, medical costs such as an operation not covered by your medical aid or worse you lose your job. How will you finance an expense of this magnitude?
Since my unfortunate incident that dreaded Tuesday morning, I’ve opened up a savings account to save for rainy days. This incident forced me to look at my already stretched budget and try finding LSL1 000 I could divert towards the emergency savings fund- this is all I can afford at the moment. This financial decision has definitely not been easy to manage and I’ve had to make big sacrifices; but the goal will be worth it. I’ve also committed myself to increasing the savings from time to time because we can never be too prepared for emergencies.
The lesson I would like to share with you today is to start saving for any emergency likely to affect you. You need to understand your own financial circumstances and develop a savings plan to suit your situation. You may afford to save more than the LSL1 000 I save monthly or less depending on your circumstances. The key lesson is to assess your situation and plan accordingly to ensure you create financial wellness for yourself. Lastly, always consult a Certified Financial Planner for more information and advice.
