Building an Emergency Fund

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Saving for a rainy day

An emergency fund (also known as a rainy day fund or savings buffer) gives you some breathing space to deal with life’s ups and downs. You can use this money if something unexpected happens to you or your family, like your car needs major repairs, or you need to buy a new washing machine.

Here we show you how to build an emergency fund to protect yourself if things go wrong.

What is an emergency fund?

An emergency fund is an amount of money you have set aside to help cover the cost of any urgent and unexpected expenses. Having a savings buffer means you won’t need to borrow money if a crisis happens and you need money quickly. It can give you peace of mind that you can face any bumps in the road.

Start small to build your savings

The secret to building a savings buffer is to start small and save regularly. It doesn’t matter how much – or how little – you save, you just need to make a start, and then keep going.

For example, if you save as little as $10 or $20 per week, you’ll have $520 or even $1,040 by the end of the year. That’s the start of a solid amount of savings that will give you some financial breathing space.

Automate your savings

Saving regularly is the best way to build up your savings balance. Set up a separate high interest savings account for your savings to go into via automated payments set up with your bank. You can also ask your payroll department if they can send part of your pay to your savings account.

Then you can set and forget, knowing that your savings are growing without you having to transfer them every time you get paid.

If you find a savings account that offers bonus interest for every month you don’t make a withdrawal, you’ll be less likely to touch the money unless it’s an emergency.

Savings round up

Some banks now offer an option to round up purchases you make using a con-tactless card and transfer this amount to your savings account. You can set the round up amount to the nearest $1 or $5.

For example, if you set your round up amount to the nearest dollar and you buy a coffee for $4.50, your account will be debited with $5 and the 50c change will be added to your savings account.

Maximise your offset account

If you have a home loan with an offset account, you could use this account as your emergency fund. That way, your money will be working to reduce your interest payments, but will also be available to use if you need it.

Ways to save every day

Track your expenses

It’s easy to lose track of the money you spend everyday. By getting into the habit of recording what you are spending your money on, you’ll be able to identify areas where you can save. 

Avoid impulse buying

Every dollar you spend on an impulse purchase is another dollar you don’t have to build your savings. Check out our tips on how to reduce the urge to impulse buy.

Save spare change

Who said piggy banks are just for kids? Get an empty jar or ice cream container and put your spare change into it at the end of each week. When the container is full, deposit the money into your emergency fund.

Do a budget

A budget can help you get a better picture of your finances, allowing you to plug any spending leaks you might find. Work out what your household expenses are.

Keep adding to your savings

If you happen to get any extra money during the year, for example from a tax refund, you can add this money to your savings pool.

When to use your emergency fund

Receiving an unexpectedly large or urgent expense is never a good feeling, but having a savings buffer will help to keep your stress levels down. You won’t have to worry about where you’ll get the money to pay for it, and you can focus your energy on solving the problem.

Smart tip;

If you need to dip into your emergency fund, remember to top it up again afterwards.
Keep your emergency fund for those expenses you really need to pay now. If you want to use your savings for something else, then set up a separate savings goal.

Wealthness Pty Ltd ABN 13 231 248 112  [t/a Better Financial Planning Australia]  is a Corporate Authorised Representative of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL No. 236523. It is important to be aware that Better Financial Planning Australia is not authorised by Infocus to provide advice relating to credit services or property advice. Infocus is not responsible for any advice outside of the scope of this authorisation and should you wish to act on any of this general information, please first seek professional financial advice.

Wealthness Pty Ltd t/as Better Financial Planning Australia will endeavour to update the website as needed. However, information can change without notice and Wealthness Pty Ltd t/as Better Financial Planning Australia does not guarantee the accuracy of information on the website, including information provided by third parties, at any time.

This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. Infocus Securities Australia Pty Ltd strongly suggests that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based upon their own personal circumstances. Although we consider the sources for this material reliable, no warranty is given and no liability is accepted for any statement or opinion or for any error or omission.

Wealthness Pty Ltd t/as Better Financial Planning Australia does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this website. Except insofar as any liability under statute cannot be excluded, Wealthness Pty Ltd t/as Better Financial Planning Australia and its employees do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person.

Wealthness Pty Ltd (ACN 613 313 250) [t/a Better Financial Planning Australia] Corporate Authorised Representative of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL Licence No. 236523. Source: Money Smart, Australian Securities & Investment CommissionSEPTEMBER 10, 2019

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