How to effectively structure your savings

I used to underestimate the need to put saving structures in place. I have now learnt that it is important to align your savings goals with liquidity time frames (cash needs to be available when needed). When my husband and I initially combined our finances, our main goal was saving for a property so we had one savings account for everything and this somewhat complicated our finances later on. Having a savings structure is having different savings account for different purposes. In this blog I will be writing about the different savings accounts.

Emergency Savings 

Emergency savings or Emergency fund is money you put aside for unexpected events that will require financing. This has to remain liquid which means the cash needs to be available when you need it. A savings account can be used which you have easy access to. This can be used to cover unexpected events like unexpected job loss, car breakdown (where it’s not covered by insurance), family requirements etc. The amount saved will depend on the need for example, if it’s to cover an unexpected job loss, then you need to factor in how much you need per month and how long it will be before you get money. If any of the money is spent, it needs to be replaced as soon as you can.  Please note that you can get insurance to cover for emergencies, speak to your financial advisor for more information.  

Short term savings for goals 

At the start of the year we usually have a family meeting and decide on the goals for the year. This will then determine the savings goals we have for the year for example, more money for holidays, purchasing an asset or investing. It’s important to write down how much you need to achieve your goals. Money from these savings is only used for the intended purposes and nothing else. 

Investment 

It is important to invest in order to receive a return for your money. Money that is not required in the short term can be invested in order to generate more income. When we became parents, we saved up an adequate amount of money that enabled us to invest in properties. This enabled us to create another source of income. Many investment options are available and can be discussed with a financial advisor.

In order for the above structures to work, you need to have a functional budget that enables you to plan your finances. Discipline is also required as you will need to spend within the limits and ensure you do not go over.  How you prioritise the savings will depend on your individual circumstances.