South Africa’s middle class is strapped for cash – here’s how many will struggle to survive a financial emergency

The national lockdown revealed that very few South Africans had emergency savings on hand, which is why many struggled to make ends meet when the pandemic struck and had to settle for a drop or a total loss of income for a few months.

Raj Makanjee, chief executive of FNB Retail, says the accepted best practice for becoming financially resilient is to have emergency savings equivalent to at least three months of income or take home pay.

Having a three-month financial buffer can be a lifeline if an unexpected situation arises, like a layoff or temporary loss of income, Makanjee said.

“Because these savings allow us to get through tough times or cover unforeseen expenses without having to incur additional debt just to cover our monthly living expenses. These unforeseen expenses could include a burst geyser, new tires for the car, or medical bills. “

Makanjee said very few South Africans have enough, if any, emergency savings, a fact that was highlighted by research conducted by the FNB among its middle-income clients who earn between 15,000 and 42. 000 rand per month.

“Our investigation revealed that over 80% of middle-income clients have little or no savings which they can access within 7 days in an emergency. “

About 27% have no emergency savings and 56% have savings that are less than a week of take-home pay, he said.

The research looked at all the money customers have in transaction and savings accounts, as well as prepayments on access facilities such as credit cards or home loans that they can access within seven days.

According to FNB internal research, less than 6% of the bank’s middle-income customers have emergency savings that would allow them to lose their regular income for three months or more.

“By comparing clients with the same income level but different savings levels, we found that clients with little or no savings tend to spend more on discretionary expense categories such as travel, accommodation. holidays and alcohol, ”said Doret Jooste, managing director of Retail Money Management at FNB.

“The comparison also found that lower savers tend to spend more on servicing unsecured debt, such as personal loans and credit cards, than customers who save more.

“This shows that, rather than income determining savings levels, the day-to-day decisions we make about spending or how much debt we incur have a big influence on our savings levels or our ability to be. financially resilient. ”

How to accumulate savings

Jooste said the first step towards building an emergency savings balance is recognizing that it can take time and that patience is key.

“It’s easy to get overwhelmed by looking at how much money we need to save, and because of that, we might never get started,” she says. “If you’re just starting out, don’t focus on the three months of income needed – just aim for half a month of income or take home pay as your starting goal.

“Then decide how much you are going to spend each month on that savings goal and record it as soon as you get your salary.”

Jooste putting R50 or R100 towards your savings goal is a good place to start, as that money will grow over time and it is always better to start today rather than postpone it “someday”.

Since low savers tend to have higher debt, it’s important to balance that freed up money between paying down debt and saving, Jooste said.

“For example, if you have freed up R300, try redirecting R200 to pay off your debt sooner while opening a savings account with the remaining R100 while staying on budget.”

Jooste recommended automating your savings as a great way to stay in control of your savings over time.

“So while building up enough emergency savings may seem difficult at first, it may be possible, and the usefulness of having that financial buffer when we need it tomorrow far outweighs the small changes we may need. -be brought to achieve it. today.”

Read: A million rand invested in these different options a year ago would be worth the same today

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