Life is full of surprises, and it can throw us the occasional curveball just when we seem to be cruising along nicely. An unexpected illness, job loss or mega-bill can catch us unawares, and a difficult situation can become overwhelming with no emergency savings plan in place.
Inflation, job market uncertainty and the prospect of economic downturns seep into the psyche, making us uneasy and anxious about the future.
Take back control with the help of a Brisbane financial planner you can trust. Experts in financial risk management, PAC Financial has you covered.
What Is an Emergency Savings Fund—And What Is It Not?
An emergency fund is a pot of cash you can access immediately for an unexpected expense. Here are some examples of what you might use it for:
- A major car repair that came out of the blue
- Your rent and living expenses after losing a job
- Mortgage repayments after a long period of sickness
- A significant repair to the home that your insurers won’t cover
An emergency savings plan is not there to use for a holiday or luxuries. Although you may be able to earn interest on it, you should not see it as an investment. What matters is that you have one and can access it immediately. Keep your savings plans realistic to avoid becoming demoralised.
How Much Should I Put Into My Emergency Savings Plan
It’s never too early to start putting money aside as part of your financial risk management strategy. As a rule of thumb, your goal should be to keep adding to your emergency fund until it can cover 3-6 months of living expenses.
However, some dependencies can play into how much you should set aside. For example, if you are self-employed and/or living alone, you may need to consider saving more to cover yourself for a year.
If you have more than one income in your household and have above-average job security, putting less into your emergency savings plan might also be an option.
Where Should I Keep My Emergency Fund?
Any money you put aside should always work for you in one way or another. A high-interest savings account is often the most sensible option. However, it needs to allow you access to your funds straight away.
If you are also saving for other expenses, open a secondary account specifically for your emergency savings plan. Once you’ve set up regular payments, put the account on the back burner and forget about it. Avoid a debit card for this kind of account to keep temptation in check.
If you have a home loan, consider an offset account, which essentially allows you to overpay and thus pay down the loan more quickly. There are two key essentials to consider:
- Your “payback” should be better than you would get on a high-interest account
- There’s a “redraw” facility that allows you to take cash back out if you need to
You should put measures in place to avoid getting drawn into using your funds for anything other than emergencies. 24/7 access to your emergency savings plan should be a top priority.
Steps to Build My Emergency Fund—Even Starting From Zero!
It all starts with a spreadsheet that tracks your in- and outgoings. How you do this is a matter of personal taste. You could use an app or a pen and paper.
Your regular expenses will include:
- Rent or mortgage payments
- Loan repayments
- Mobile phone, wifi and streaming subscriptions
- Utilities such as electricity, water and gas
- Insurance policies
- Gym membership
- Holiday savings fund
It can help to have all your regular outgoings leave on the same day, just after you receive your paycheck. Work out how much you have left to play with and set yourself a realistic and manageable savings target. Automate regular deposits into your emergency fund.
Use any bonuses, gifts, windfalls or tax reimbursements to boost your emergency savings plan.
If you’re just starting, tighten your belt by temporarily cutting non-essential expenses to give your fund a turbo-charge. Here are some typical offenders:
- Eating out
- Takeaway coffees
- Buying clothes you don’t need
- Nights out at bars or clubs
- Weekends away that involve a flight or hotel stay
The key here is “need” vs “want.” Stick to essentials you cannot live without and put everything else on hold, at least until you can see your emergency fund gaining some traction.
You might also be able to save money by contacting those who supply your utilities or provide mobile services. It’s often possible to negotiate more cost-effective plans that, taken over a year, translate into substantial savings.
You could also consider having a big clear-out and selling unused electrical goods, vintage clothing or sports items online. Anything you haven’t worn or used for six to twelve months or more is good to go!
Common Mistakes to Avoid
We are all human and would do well to learn from the mistakes others have made managing their emergency funds in the past. Here are typical pitfalls:
- Dipping into your fund for a non-emergency
- Putting your emergency cash into volatile assets
- Not being able to access your emergency fund when you need it
- Setting aside too much for emergencies that you could invest elsewhere
How a Financial Planner Can Help You Stay Prepared
One of the benefits of a Brisbane Financial Planner like PAC Financial is that they can look at your financial situation objectively. They can give you personalised advice tailored to your income, outgoings and life stage.
Financial risk management includes having a robust emergency savings plan. The team at PAC Financial will be able to see in an instant how you can make your hard-earned cash go further so that it works harder for you.
A bespoke financial strategy offers peace of mind because it puts you in the driver’s seat, giving you total control of managing your finances.
At PAC Financial, our Brisbane-based team helps everyday Australians build resilience through smart planning. Let us help you create a financial buffer that keeps you secure—no matter what life throws your way.
