Preparing for any home emergency
Category Financial
Part of owning a home is being prepared for the unexpected. Although it is impossible to know when it will strike, there is a good likelihood that at some stage a home emergency will happen. This is why it is always good to have a contingency fund in place to take some of the financial sting out of the equation, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
“Considering the long term nature of homeownership, it is particularly important for homeowners to have money put aside for a rainy day. Life has an incredible knack of throwing a few curve balls along the way, which is why it is best to have a plan of action in place to deal with the obstacles ahead and keep going. On average the typical buyer of a single-family home will stay in the property for around 13 years - during this time a lot can happen and change. The homeowner will need to know that they have the means to be able to address those changes as they arise, without it jeopardising their homeownership,” says Goslett.
Aside from household emergencies such as the needing to replace the roof or repairing any structural damage, both of which could be financially crippling, there are also other factors that will have a massive impact on the household, such as retrenchment or job loss. “If any of these things happen, would the homeowner be in a financial position to still be able to afford their home? “The harsh reality is that certain homeowners could possibly lose their employment and will need to find a way to still make the necessary payments on their properties. Ideally homeowners should be preparing for these kinds of financial emergencies in order to put themselves in a far better position for the future,” advises Goslett.
He notes that there are essentially three basic steps that a homeowner will need to take to start their contingency fund. While the idea of putting money aside will be a daunting task, especially with the tough year ahead, the consequences of not having a financial cushion to fall back on will be far greater. An emergency fund will create a safety net that will assist homeowners to deal with any obstacles that comes their way, regardless if it is something as big as losing their job or as trivial as a leaking toilet.
Step one – Work out the required amount
To start off with, the goal should be to save around one month’s income, however it is best to aim for more. “In a perfect situation six month’s income in savings is ideal. This will create sound financial backing should any emergency arise. It will take a fair amount of time to save up six month’s income so keep motivated by setting smaller interim goals. Achieving regular smaller goals will feel like progress and keep the homeowner focused on the ultimate goal,” says Goslett.
Step two – Select a saving account
Choosing the right account is a vital element when looking to build up a sufficient savings. Some accounts will yield higher interest rates which will assist in building the savings at a faster rate, however many of these accounts will have a notice period before the money can be released. In an emergency situation this might be a problem, depending on the circumstances. It is important to find a low-risk account that offers decent interest yield, along with accessibility.
Step three – Automate the savings
Making the decision to put money into savings every month requires discipline, while some may not struggle with this - others will. The easiest way to ensure that some money is allocated to the emergency fund each month is by arranging a direct deposit system that transfers the selected savings amount into the account without the homeowner having to do a thing. “If the savings amount is automatically put away, it takes discipline out of the picture and ensures that a portion of the homeowner’s income goes towards their contingency fund regularly,” says Goslett.
An emergency fund for homeowners is crucial to assist them with dealing with any financial crisis without being forced into debt. “An emergency fund is one of the best tools for homeowners to prepare for the unexpected and build a solid foundation for their financial security and independence,” Goslett concludes.
Author: REMAX SA