Persons with a stable income stream should aim for 3-6 months' worth of savings. (Photo: szefei)

What would happen if you lost a major source of income? Or had a sudden, unexpected expense? The novel coronavirus pandemic has taught us that our financial or economic condition can change in an instant. At the start of the pandemic many families and even businesses were caught off guard. Restrictions intensified and employers buckled under the pressure leading to job losses, which left many households with little to no income. Put simply, utilities, groceries, health care, and other recurrent expenses were jeopardised.

By the first six to 12 months of the pandemic many households had burnt through their savings and were hanging on by a thread. This is when many people may have been tempted to dip into their investment or retirement account to make ends meet.

This predicament is exactly why consumers are encouraged to set up an emergency fund. An emergency fund, also known as contingency fund, is a personal budget set aside as a financial safety net for future mishaps or unexpected expenses. This means that it is separate from your regular savings and investments. It is money that you put aside for the proverbial rainy day. It may not be an easy thing to do, but it will come in handy when you need it the most. An emergency fund can act as a buffer in times of financial shock or distress and ensures that you are prepared for the surprises which life often brings.

Professionally, bankers recommend that pe0ple with a stable income stream should aim for 3-6 months' worth of savings. If you're in an unstable job, or close to retirement, it's best to aim for 1 year's worth.

Because an emergency fund is expected to be easily accessible and liquid it is recommended that a savings account is used. The alternative of putting emergency funds in stocks and bonds could result in the money being eroded over time, if the value of your assets falls below its initial price.

With that said, there are certain tips which you can use to help set up a solid emergency fund. Below are some of the stretegies recommended by the JMMB Group.

- Know what you're saving towards: All saving begin with goals. Figure out your emergency fund goals and the amount you want to save toward.

-Be consistent: Based on your goals, figure out an amount you can commit to save every month and stick to it.

-Start small: You may not have to break the bank. Start small and build up your discipline.

-Build it with bonuses: When you receive bonuses, raises, or retroactive payments, make sure to use them to give your emergency fund a big boost.

-Save it for real emergencies (and opportunities): Don't use it for celebration or a family vacation. This is for real emergencies and opportunities only.

-Keep it separate: Don't mix your emergency fund with your daily spending money. Keep it in a separate account.

-Know your options: It is understandable that sometimes 'life happens' which is why JMMB offers a payday advance loan solution as well as the JMMB Payroll Bridge.

As the world around us becomes more predictable, consider putting the necessary plans in place to ensure a sound financial position, which is free of stress and bad debt.

BY ANDREW LAIDLEY Senior business reporter

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