Family Finance

The need for emergency savings

Much frustration in financial crises can be averted if a family allocates a percentage of its income to saving. Savings also allow families to purchase with cash and shop for the best buys, irrespective of the store.

Without savings, if there were an emergency, families would have to rely on credit and, ultimately, end up deeper in debt. Simply put, without emergency savings, borrowing would be a foregone conclusion, the use of credit would become a lifelong necessity, and debt would be a way of life.

Everyone in our society living above the poverty level probably has the capability to save money, yet many fail to do so because they do not realise even $5 per saved per month will add up over time.

How much for emergency savings?

On a steady income - 3-6 months’ salary.

On a fluctuating or seasonal income - six months’ salary is best.

About 5 per cent of Net Spendable Income should be put aside in an emergency reserve savings account, to take care of expenses that might arise.

This does not mean that large amounts of money should be saved while failing to pay creditors, but a good habit to develop is to save a small amount on a regular basis.

This type of savings is not long-range savings for education or retirement; it is non-allocated short-term savings designed to help compensate for unexpected emergencies.

Saving not hoarding

The parable of the ant in Proverbs 6:6-8 says; “Go to the ant, O sluggard, observe her ways and be wise, which, having no chief, officer or ruler, prepares her food in the summer and gathers her provision in the harvest.”

Within their colony, ants have calculated almost exactly what they will need to get through the winter. They gather and store that amount in their anthill during the summer and autumn.

Saving is good stewardship: looking forward to a future need and putting aside whatever is necessary to meet that future need so that borrowing will not be necessary.

Hoarding is putting money aside for no particular reason, and that money will not be used even if it is needed.

The difference between saving and hoarding is attitude, not the amount of money.

Courtesy Crown Financial Ministries

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