Whether you like to plan or someone who takes things as they come, some things just happen unexpectedly and may cause financial strain that can be challenging for any of us to overcome.
The good news is, by creating a savings buffer for a rainy day you could feel more confident that you can support yourself and your family through those ‘real life’ moments.
In April 2020, the ABC reported about half of all Australians have less than $10,000 in savings, with a third having less than $5,000 stored away and a quarter having less than $1,000 available. With spending estimates for one person being $2,835 on average each month, a couple $4,118 and a family of four $5,378, many people may not have enough savings to cover even a month of expenses.1
And that doesn’t take rent or mortgage expenses into account. If you suddenly lost your source of income, how long could you manage on your current savings?
The unexpected can come in many forms
The sudden and severe worldwide impact of the coronavirus epidemic, as well as the bushfires that happened earlier this year in 2020, have left thousands of Aussies scrambling to repair businesses and homes.
In addition to natural disasters, personal events such as divorce, injury or sudden loss of employment can all disrupt your personal finances. Financial difficulty can add to the stress of an already challenging time, causing tensions between family members or pressure to keep going as ‘normal’. This can result in increasing debt, loss of assets and/or changes to living conditions.
Having an emergency savings fund could be one way to avoid or ease the pressure that can come with these real life situations.
Here's 5 tips to help build an emergency safety net.
1. Set up a separate account for your emergency savings fund
It’s a good idea to consider keeping emergency money separate from your main bank accounts. This way you’re less likely to dip into it unnecessarily and you can easily track your progress towards your savings goal.
2. Crunch your cost of living numbers
Work out your current income and be realistic about essential expenses including groceries, rent or mortgage, utilities, car payments, insurance and your social life. You can then consider big-picture financial goals like saving for a holiday or a house deposit. Once you have reviewed your current financial situation, you can review your spending and budgeting habits to find opportunities to save and decide how much is a reasonable amount to add to your emergency fund each month. To find out more about simple budgeting tips click here.
3. Set reasonable goals.
Don’t expect instant results. By setting reasonable goals, you’re more likely to stick to your savings goals. Having three to six months worth of expenses in your emergency fund could be a good target as this could cover your expenses if, for example, you need to find a new job or can’t work due to illness. However, the most important step you can take is just getting started.
Handy hint: According to MoneySmart, saving $10-$20 a week will result in over $1,040 in savings in a year!2
4. Set up automatic transfers.
Take the effort out of saving by having money moved straight into your emergency savings fund from your pay. This can be as easy as asking your employer to set up an automatic transfer to an account separate to where your pay is deposited. That way you won’t forget – and you’re not so easily tempted to spend it.
5. Keep the extras
Emptying loose change into a jar can be an easy way to top up savings. Once the jar is full, deposit the cash straight into your emergency savings fund account. If you’ve ditched cash, there are some bank accounts that ‘round up’ your transactions with the remaining digital change added to your linked savings account. So if you spend $46.80 at dinner, $3.20 will go straight into your savings account.
If you received extra bonuses at work from job well done, or had a year with a big tax refund, you may want to consider putting the extras towards your emergency savings fund account. A little extra goes a long way!
You never know when your life could be impacted by the unexpected. But developing savings habits and building an emergency savings fund can help you feel more in control if an emergency does strikes. Once you’ve set up your emergency fund there are some simple ways to stay on track to help you succeed with your longer-term savings goals.
Want more tips? Browse our library of money management articles here.
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