We think that all economic world crises happen only when things go really bad and this is only about twice every 10-20 years …think again.
When I researched a list of the past economic crises that took place only in the 21st century I was shocked to see the number of times countries have had major problems. If one country has economic problems- all the investments (retirement/pension/unit trusts/eft`s/shares) out there are influenced negatively.
Enter the nifty emergency fund:
This type of emergency fund I am referring to must be:
-built up to 3-6 months of living expenses to really cushion you from any bad situations (retrenchment/pandemics/loss of monthly income/big emergency expenses like new tyres/old age parents in financial trouble/wear and tear on your vehicle or around your house).
-you know you are in the right emergency type account/investment when the interest rate is very low, in line with inflation or even lower- this is because this type of fund is for immediate use and not long-term capital growth to beat inflation. Low interest rate accounts have utility in that they are LOW RISK over the short term.
– An emergency fund is not an overdraft and not a credit card. If It has an interest rate attached to it and if something really goes pear shape (like you having a lot of debt and you lose your job, you will have a lot of trouble trying to pay off that debt with zero income.
-Saving is NOT the same as investing. Saving is for your short-term needs aka emergency funds or saving towards a trip/holiday (less than 1-2 years).
-An emergency fund should also not be locked up for 30 days or longer. Some banks offer 32- day call accounts or 5 year guaranteed investments that locks up the money to let it grow at a higher interest rate- not suitable for 24-hour emergencies.
You cannot afford to save for any goal that is more than 3 years away in a normal bank account with low interest rates- your money`s value is going BACKWARDS in time in a bank account (inflation is not your friend).
When the price of stuff goes up by 2%-5% every year and the growth in your savings account is 3% you can buy less with the same money you have available today for stuff 3 years into the future. You have inflation risk if you save all your money in a bank account as well.
Here I reference the list of economic crises that we lived through and that impacted us directly or indirectly:
Argentine economic crisis (1999–2002)
Early 2000s recession (2001-2002)
Dot-com bubble (2000-2002) (US)
2001 Turkish economic crisis
2001 September 11th Attacks
2002 Uruguay banking crisis
Venezuelan general strike of 2002–03
2007-2009 Great Financial Crisis
Late-2000s recession (worldwide) (2010)
2000s energy crisis (2003-2009) oil price bubble
Subprime mortgage crisis (US) (2007-2010)
United States housing bubble and United States housing market correction (US) (2003-2011)
Automotive industry crisis of 2008–2010 (US)
2008–2012 Icelandic financial crisis
2008–2010 Irish banking crisis
Russian financial crisis of 2008–2009
2008 Latvian financial crisis
Venezuelan banking crisis of 2009–10
2008-16 Spanish financial crisis
European sovereign debt crisis (EU) (2009-2019)
Greek government-debt crisis (2009-2019)
2010–2014 Portuguese financial crisis
Crisis in Venezuela (2012-now)
Ukrainian crisis (2013-2014)
2014 Russian financial crisis
2014-2017 Brazilian economic crisis
2015 Chinese stock market crash
Turkish currency and debt crisis, 2018
Argentine monetary crisis
Economic impact of the COVID-19 pandemic (2020-present day)
2020 stock market crash (2020-)
Black Monday (March 9) Worst dip in investment markets since 1929
Black Thursday (March 12) Second worst dip since 1929
Lebanese liquidity crisis (current)
Crazy isn`t it? Not saving is really for the very brave.