ESTHER MUKUMBO: Small habits, big rewards

In 2022 a post-pandemic report by Old Mutual found that only 37% of South Africans have an emergency fund.  The reality is that with the increasing cost of living, higher interest rates and daily financial demands, it is hard for ordinary citizens to find enough money to save.

I am part of this statistic. It took me over four years to save for an emergency fund because of various financial commitments. And  I have realised that it is the small habits that yield the best results.

I used to struggle with the idea of saving money. Towards the end of every year — usually in November — I would start planning financially for the following year. I’d start big, and set myself bold targets like: “This year I will save 20% of my salary on a monthly basis.” Come  February (because January is all about survival, right?) I would succeed in putting aside the 20%, but after a week or two, before payday, I would be reaching into my savings to survive the rest of the month.

Like me, 52% of South Africans use savings and other means to supplement their income to survive the month.

This went on for a couple of years, until I realised I was setting unrealistic expectations, which is why I kept failing. So, four years ago, I decided to start with small, manageable amounts. I introduced the 1% rule — that is to save 1% of my net salary every month.

My favourite quote from the book Atomic Habits by James Clear is: “Your net worth is a lagging measure of your financial habits. Your weight is a lagging measure of your eating habits. Your knowledge is a lagging measure of your learning habits. Your clutter is a lagging measure of your cleaning habits. You get what you repeat.” 

The recommended emergency fund is that it should be equal to between three and six months of your living expenses. But there is also so much demand on our everyday financial needs that it’s very easy to get lost in the definition of what an emergency is and what it isn’t.  Still, you can regard any unexpected bill that arises (which you may be unable to pay) as an emergency, such as illness or a burst geyser, say.

When it comes to creating a new habit with your finances, it is also a good idea  to go through your bank statements and figure out what your spending patterns are. What small  adjustments could you introduce?

• For starters: track and log your spend — Understand where your money is going; this will indicate what your spending habits are. 
• Budget — Set aside a realistic amount that you can commit to. For me this meant saving 1% of my take-home salary every month. And  track your progress here.
• Define your emergencies — Anything that falls outside this parameter should not come out of this pot.

These three  steps have helped me to build an adequate emergency fund. Start now, and give yourself peace of mind when those unexpected life events happen.

* Mukumbo is a financial literacy enthusiast and investor