• Lethabo Ngale

How to be prepared for financial surprises

Financial surprises can affect you and your family, potentially causing emotional distress. If you have not planned properly by putting emergency funding in place, you run the risk of getting into debt, which will slow down your financial progress and set you back from achieving your goals.

A proper financial plan requires that you are ready for unexpected financial emergencies. Anything that requires a capital amount, like medical aid co-payments or car insurance excess could lead to you being forced to access credit to finance the emergency. To avoid this, review your plan annually by assessing what emergencies you are mostly likely to encounter, being cognisant of any significant changes in your life like having a baby or buying a new home.

The most important aspect to have in place is an emergency savings account. This emergency fund is there to finance any urgent situations, keeping you out of debt and avoiding the need to take out a loan or a credit card.

The account needs to be easily accessible with no long notice periods or turnaround times between submitting a withdrawal form and receiving the funds. It is important that you understand the terms and condition of the account.

Easily accessible does not mean easy to spend. Banking institutions have made it easy for people to open savings accounts linked to their bank accounts, however if you link your emergency savings account to your bank account, it makes it easy to spend. So strike a balance between easy to access in an emergency and easy to spend.

Ensure that the account is interest bearing to keep afloat of inflation, such as a fixed interest account or a cash portfolio. Do not save the money in an account that is exposed to high amounts of risk where returns are dependent on the performance of the financial markets.

Insurance is something easily taken for granted, but imagine paying for a car that was written off. Having your insurance planned to deal with such financial implications could save you from a financial crisis. The important thing is identifying those risks and finding ways to mitigate them.

Death in the family can be both emotionally and financially strenuous. In the South African context, many people who are employed are not only responsible for their immediate family, but also their extended families. That means being responsible for any burial expenses of relatives.

Have a medical aid plan in place and don’t forget the gap cover if your preference is for a lower level plan. If you are an entrepreneur and your business is relying on you for income generation, you may need to have business overheads insurance over and above your medical aid which covers you for business liabilities and expenses if you are injured and unable to work.

Most financial surprises actually shouldn’t come as that much of a surprise. Avoid the negative effects of unpleasant money surprises over the course of your life by understanding what could happen in each life stage and planning for it. If it never happens, at least you have money saved for a rainy day.