Why You Need An Emergency Fund

In life you should expect the unexpected. This is why you need an emergency fund. The best you can do is prepare for these emergencies by having additional money available to you in the form of an emergency fund.

Financial emergencies can come in the form of a job loss, significant medical expenses, home or auto repairs or something you’ve never even imagined. The last thing you want is to be forced to rely on credit cards or on a loan, which could simply compound the problem.

We at Silke Financial Services recommend that you keep between three to six months’ worth of your living expenses set aside in your emergency fund. The reason you want to have three to six months of expenses saved up is that the most common reason for the need of an emergency fund is sudden loss of income. It is best to plan for a worst-case scenario so that the smaller emergencies, such as replacing the hot water geyser, will be easily covered.

If you currently do not have an emergency fund, or find it difficult to save money, the key is to start small. You have to realise that accumulating one month’s worth of expenses will take some time, let alone three to six months. If you set your immediate goals to be small and manageable you will have a better chance of reaching them.

Money Market Holding Account

We always recommend using a money market holding account for your emergency fund. A money market account is similar to any other investment at a bank, such as a fixed-term deposit or a notice deposit. You deposit your money into the account and earn interest on that money for as long as your money remains invested.

The main advantages of money market deposit accounts include:

• Higher returns
• Your money is not locked into a specific investment term, as is the case with a fixed or notice deposit.
• Your capital in a money market account is guaranteed.
• You are not tied into shares so the volatility of the market will not cause you to lose money over the short-term.

Should you wish to start an emergency holding account please email us.

Silke Financial Services has the expertise to advise you on all your emergency and any specific investment needs.