Retirement or emergency fund?

How do I determine what to prioritise – an emergency fund or retirement savings? It’s difficult to know where to focus, particularly when money is tight.

Name withheld

Emile Jansen van Rensburg, a wealth adviser at PSG, responds:

This is a tricky one, as both savings goals (savings toward retirement and building up a rainy-day fund for emergencies) are crucially important. You can’t take out a loan to fund your retirement, but you need to have money to be able to fix a leaking roof or a faulty car engine.

If you have to choose, we recommend your first priority is saving towards a rainy-day fund for emergencies. It should be able to cover three to six months of your expenses. In addition, you should save in a product that is easily accessible, such as a money market account where it will earn more interest than simply keeping it in your dayto-day savings account, where you may be tempted to spend it. Last, make sure that you think seriously about what constitutes an emergency and what doesn’t before tapping into this fund.

Once you have made some progress with your rainy-day fund, start focusing on putting some money away towards your retirement – and don’t leave this too long, as the longer your money has to grow, the better. The tax deductibility of retirement fund contributions can also make this more affordable than you might think, and perhaps you can, in fact, afford saving for both goals at the same time.

It is best to speak to a

financial adviser to understand your options and weigh up how you can better prioritise your goals.