Shit happens.

It's a fact of life that will never ever change. One day you're gainfully employed the next you're made redundant. Your car might break down, a pipe might burst or your roof could cave in. You never know when disaster might strike, only that it will.

You need an emergency fund.

What is an emergency fund?

An emergency fund is an easily accessible stash of money that is kept separate from other savings accounts. It is meant for emergencies — real ones — and emergencies only.

Personal finance experts agree that starting an emergency fund is the first thing you should do with your money after you've met your basic needs. Don't start with any other savings or work towards other financial goals — even paying off debt — before you've got at least a small cushion against life's inevitable knocks.

Why would you put money into an emergency fund if you've got lots of expensive debt? Because if it hits the fan and you can't cope you'll find yourself even deeper in debt.

If you owe a lot of money, save until you have a small emergency fund and then start tackling your debt. Once you're debt free, but before you start other investments, continue to ramp up your emergency fund and you'll have a far better chance of avoiding debt forever.

An essential part of any debt reduction plan

People with emergency funds invariably emerge from crises in better financial shape than those without and are far less likely to accumulate debt.

When financial disaster strikes what's the first thing many people do? They cut their repayments and use their credit cards to pay for the emergency. An emergency fund negates the need to use credit for unforeseen expenses.

Saving for a rainy day can also help you smooth out your budget, because you won't need to adjust yours in the event of a catastrophe.

How much should you save for emergencies?

The answer is different for every person as it depends on your circumstances. Some experts recommend a year's salary while others reckon about R5000 should do it. Generally I would recommend you save enough money to cover all your expenses for a minimum of three months.

If you don't have a great deal of job security or the economy is in recession you'll probably do well to save more. If you have other funds you can utilise in case of an emergency or rich family members that can help you out you'll need less. Think carefully about your own situation and decide how much you need.

Be very careful you don't underestimate the amount you might need, but don't save too much either. Having, for example, a whole year's salary in your fund is way too much. You'll be better off investing part of that instead of it just languishing in the bank. Save just enough and put the rest to work.

How do you get started?

• Start small. Opening your emergency fund can be as simple as depositing R200 into a savings account. Don't be put off by the fact that you don't have a lot to save. Taking the first step, however small, is the most important thing.

• Treat emergency savings as one of your accounts that you have to pay. Add you emergency fund to the list of accounts that you have to pay each month and pay it at the same time as the rest. By treating it as a non-negotiable debt, you'll ensure that you save some cash towards emergencies before you can spend what's left on other things.

• Cut and save. Find something you can cut back on. Cancel your DSTV subscription, buy a cheaper car or do whatever. Take the extra cash you have left after cutting back and put it in the emergency fund.

• Keep 'paying' your debt, even when it's settled. Cleared your card? You won't feel a difference if you deposit the amount you were paying into your emergency fund.

• Don't spend your yearend bonus or tax rebate, but immediately deposit it into your emergency fund.

• Shop around for a better rate and consolidate your debt. Don't spend the extra cash — you know what to do.

• Don't spend your coins. Empty your wallet into a piggy bank every day and at the end of the month deposit it into your emergency fund.

Where to keep the money

You should keep your money in an easily accessible savings account. A money market account is perfect as it offers a much higher interest rate than a normal savings account while still giving you easy access when you need it.

To open a money market account you'll need a minimum of R10 000 (this varies from bank to bank). If you can't open a money market account right away use a normal savings account until you have enough.