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As promised, a short and insightful video on how to create an emergency fund. The importance of an emergency fund has never been more paramount than in the last few months. Go on, watch the video!
Today’s video is on the how, what and why of having an emergency fund.
As this year has shown, now is the time to start boosting that fund!
What is an emergency fund?
- An emergency fund is money you set aside to cover unexpected or urgent bills such as unexpected medical bills, an urgent car repair or perhaps unexpected travel expenses (like if you’re stuck overseas and need to come home asap due to COVID).
- It provides you with a financial buffer so you don’t have to borrow money if something happens to you or your family.
How much do you start with?
- That depends on you BUT even if you can only save a little, make a start and keep saving. The more you can regularly save, the better.
- Even if you start off putting aside $10 bucks a week into a separate account, that will be $520 by year end, a spare $20 – and it’s $1040 a year… and more importantly the start of a decent level of savings to give you some financial breathing space.
What about the longer term?
- If you’re thinking long term, then think about putting more aside. For example, if you want to take a long overseas holiday (ha!) or if you suddenly find yourself out of work for a while.
- Personally, I’ve been in this situation, when I’ve been laid off unexpectedly without a sufficient emergency fund. I can tell you it ain’t pretty worrying about money when you don’t have any.
- That’s why these days, I try and aim to have enough in my emergency fund to cover 6 months of expenses – expenses like our household bills, mortgage repayments, utilities, groceries etc.
How to implement a fund?
Here are 4 ways:
Set up a separate savings account – it’s a good idea to set up a separate, high-interest savings account as a separate account ensures you are less tempted to dip into it for everyday expenses.
Automate your savings – you could also set up an automatic transfer to your emergency fund from the account your salary is paid into, or even ask your payroll department to pay a portion, say 10% of your wages directly into your emergency fund account.
Maximise your offset account – if, like me, you have a home loan offset account, you can use this offset account as your emergency fund. By having extra money means you can lower your interest payments, as well as remaining liquid.
Keep adding to your emergency fund – if you’re lucky enough to get some extra money during the year, like a tax refund, make sure you use this bonus to boost your emergency savings.
Most importantly – when should you use your emergency fund?
Simple, use your emergency fund for expenses you need to pay quickly when other money isn’t available.
Remain disciplined and focus here people. It’s not meant to be raided when you suddenly need beer money, or want to have a good night out – no it is for EMERGENCIES ONLY (ambulance noises).
If an expense can wait, save up for a few weeks instead.
Oh and remember, if you dip into your emergency fund, remember to top it up again afterwards.
Hope you guys found the video helpful and informative!
Let me know in the comments below what you thought please!
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