An emergency fund (aka. rainy day fund) gives you the breathing space to be able to cope when life gives you lemons. There is nothing worse than having the added pressure of finding the money to cover large expenses for when something unexpected happens to you or your family. By having a savings buffer, it means you won’t need to borrow money or struggle financially if a crisis happens.
Everyone knows that an emergency fund is a good idea, but putting it into place more often than not becomes an after thought. The trick to building an emergency savings fund is to start small and deposit into your emergency fund regularly. It doesn’t matter if it is irregular amounts, you just need to start and be consistent. Set up an automated payment to transfer money into your savings fund – it is recommended to schedule the payment on the same day that your wage hits your spending bank account, you won’t be tempted to spend the money if it has already been moved out.
Talk to your bank about setting up a separate high interest savings account for your emergency funds. Some banks have bonus interest offerings if you deposit a certain amount per month or don’t make any withdrawals over a certain period, either way, bonus schemes like this provide you with a greater incentive to save.
If you have a home loan with an offset account, you can use this account as your emergency fund. That way, the money will be reducing your interest payments, but will be available to use if you need it.
Here are our top tips to help you on your way to being a good saver:
Keep a record of your expenses
Keep a record of everything you spend over a 4 week period. Go back and review and breakdown where you are spending your money – it may give you insights for where you can save and make small changes to your spending activity.
It catches us all out at one point or another. Some people impulse buy when they are on their lunch break or buying their groceries. Others buy products when they are searching online or when they are shopping with friends. Impulse buying may occur because of a fear of missing out (FOMO), or people may find it hard to ‘let go’ of the idea of making a purchase if they convince themselves it’s what they need to do.
When you go shopping, make a list of what you need to get and stick to it, it keeps your mind on track and stops distractions.
Get a piggy bank
Get in the habit of putting your spare change in a piggy bank, jar or container. You’ll be surprised about how quickly your money will accumulate. When full, deposit the money into your emergency fund account.
Top up your savings
If you receive any additional money during the year, e.g tax return, birthday, special occasions etc. add this money to your emergency fund.
When should you use your emergency fund
Keep your emergency fund for those unexpected expenses.
If you want to save for something else, set up a separate account for that item. ASIC’s Savings Goal Calculator can help you work out how long it will take you to save for a special item.