Emergency funds. Whether you just hit the grand on the pokies during your end of year footy trip. Or you’ve just spent your last $20 on dominoes. In the brightest of days as well as turmoil during a pandemic. You should start thinking about always having an emergency fund ready.
As i’m writing this I am actually intending on using a small part of my own emergency fund. Over the weekend since the weather was as perfect as can be. I took my motorcycle for a ride down the coast to the beautiful beaches of Wollongong.
Parked up. Went for a swim at the beach. Came back to my bike after. Got a parking ticket. I was honestly completely oblivious that there was no parking where I had parked. I can’t afford to pay it from my regular spendings. So, that’s where my emergency fund is coming to the rescue.
What is an emergency fund?
An emergency fund is exactly that. Funds for an emergency. This isn’t the money you chip in for a potluck dinner dish with. This is purely money set aside for unexpected costs that you cannot otherwise pay from your regular spendings.
This could be a range of expenses; car repairs, medical expenses, family emergencies, unexpected travel (not holidays), home repairs etc. The purpose of an emergency fund is to create for yourself and family a safety net. Money that will be able to safely cover you in the case of an emergency.
Providing you with financial safety so you don’t have to borrow money if something happens to you or your family.
‘rainy day’ savings is a key goal for two out of five Australians in 2020, according to research. Yet, many Australians are struggling to build an emergency fund that can provide them with much-needed relief when they require it. –canstar.com.au
How much should you have in your emergency fund?
Everyone is different. There is no exact number you should be aiming for. The goal you should be aiming for in an emergency fund is 3 months of your living expenses. However much your regular monthly living expenses are X3.
If you are unsure what your monthly expenses are. You need to do a budget asap. There are tonnes of easy to use budgeting apps available for free, just do a quick google search.
Setting the target is very important. It will give you a goal to work towards. Rather than mindlessly putting money into something you don’t know when it will end.
Where to start?
To start off with. You need a savings account. A separate high interest savings account. Separate from all your other finances so to be sure you don’t dip into it. Do your research on savings accounts from different financial institutions and compare. You want to get the most out of your emergency fund.
Set up an automatic transfer that will send money automatically from your checking account into the savings account every time you get paid.
Having this automated will take the temptation to skip a week of saving from you. As well as save you time manually transferring.
This will make contributing to your emergency fund effortless.
Once you hit your goal amount do not stop there. Continue contributing to your fund no matter what. When you need to use some of it, your regular contributions will repay what was spent.
Keeping to your regular contributions to your emergency fund will see you have a very comfortable safety net to see you and your family through tough financial times.