While it is not possible to predict the future and what may or may not happen, it is always a good idea to have a contingency plan in place to ensure that you are prepared for the unexpected. This is according to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who says that it is particularly important for homeowners to have a plan in place and funds put aside for a rainy day, considering the long term nature of homeownership. "Owning a home is a long term commitment, which means that the homeowner needs to have a plan of action should their financial situation change in anyway. Life can sometimes throw you some unexpected turns, so it is important to ensure that there are funds in place to be able to weather the storm and keep your head well above the water," says Goslett. He notes that an important question that every homeowner should ask is: if they lost their job tomorrow, would they be in a financial position to afford their home? "Unfortunately these things can become a reality and preparing as much as possible for these hurdles will put homeowners in a far better position for the future," adds Goslett. According to Goslett, there are three simple steps that homeowners can take to start creating an emergency fund to use as a financial cushion in tough times. He notes that while the idea of saving up in an emergency fund can seem like a daunting task, the thought of not having one is far more unnerving. An emergency fund can help homeowners financially manage any event, regardless of whether it is something as serious as losing their job or something like a burst geyser that requires urgent replacement. Unexpected expenses do happen, and more often than not at the most inconvenient moments, so it is good to have something in place to fall back on. Decide on an amount Goslett says that as a starting point, it is good to aim for around one month?s net salary, however if possible more is better. "Ideally around six months' worth of a net salary is ideal as a sound financial cushion, but as this will take time to build up, having smaller interim goals are important to help keep focused and motivated," advises Goslett. Homeowners who are contract employees with a less stable income should try to save up as much as possible to ensure that they cover the months when they earn less or don?t earn any money at all. The number of dependents a homeowner has will also influence the amount that should be saved, as will plans to expand the family. Choose an account Account selection is an important aspect when looking to build an emergency fund as certain accounts will yield a higher interest rate than others. However, when looking at a higher-interest-yield account, it is good to consider accessibility. "There is little point to having an emergency fund if the finances cannot be accessed quickly during an emergency. Often higher interest accounts have a longer waiting period before the money can be unlocked and used. Ideally the money should be easily accessible and in a low-risk account," says Goslett. Set up an automatic monthly deposit The easiest way to build up an emergency fund is by arranging a direct deposit system that transfers the selected saving amount into the emergency fund account each month. "The best time for this to happen would be as soon as the salary is paid into the account ? if you don't see it, you don?t spend it. Automating the savings will also take the need to be disciplined out of the equation and will ensure that a certain amount is set aside each and every month," says Goslett. An emergency fund for homeowners is crucial to assist them ward off financial crisis without being forced into debt. "An emergency fund is one of the best tools for homeowners to build onto their financial security and independence," Goslett concludes.
