Do you have money put aside for an emergency? If there’s one thing we can learn from the COVID-19 pandemic, it’s that things can change in the blink of an eye. Unfortunately, around 30% of Australians don’t have enough cash savings to cover even a month’s worth of living expenses in case of emergency. This is why you need to take steps to create an emergency cash fund today.
An emergency fund isn’t just for those living paycheque to paycheque. It’s for everyone, regardless of your current financial status. With rising costs of living across the globe, an emergency cash fund is there just in case something happens that’s out of your control. When you don’t have to rely on lines of credit or loans to make ends meet, you’re much more financially stable. In this guide, we’ll share how to create an emergency cash fund from scratch.
Do You Really Need an Emergency Fund?
To begin, what is an emergency cash fund? This is a savings account you keep money aside in to cover emergency expenses. It’s like a regular savings account, but you don’t use it for holidays, seasonal spending, or just because. It’s specifically for emergencies.
Even if you don’t think you need an emergency account, you probably do. Everyone can benefit from having money put aside for a rainy day. For example, here are a few situations where you might need your emergency cash fund:
- You were let go from your job or your hours were cut suddenly
- A dependent or pet needs an expensive, last minute surgery
- Your car breaks down and needs costly repairs
- You need to travel last-minute for a family emergency
- You’re displaced from your home with minimal warning
- Your home is facing expensive, unexpected repairs
Consider these emergency situations above. If you don’t think you’d already be able to afford any of them with the current state of your savings, then it’s time to get serious about creating your emergency fund. When you have money in an emergency account, you don’t have to pull from existing savings goals or debts. In other words, you’re ready for anything.
How Much Should You Save?
With that in mind, how much do you need to save in your emergency fund? There is no single answer that will suit everyone’s situation. It depends on your living situation, current savings, whether or not you have any kids/pets, and so on.
In general, you should have at least enough put aside to cover a month’s worth of expenses. Remember, this includes ongoing bills, rent payments, insurance, groceries, utilities, and so on. Most professionals encourage you to have 3 to 6 months of living expenses put aside, but this can be intimidating if you’re just getting started.
Steps to Build an Emergency Cash Fund
Now, let’s review the simple steps to build an emergency cash fund of your own. No matter if you already have debt, taking time to develop an emergency fund is beneficial to your debt-repayment journey. Follow these simple steps below to stay on track.
- Calculate how much you should save.
As explained above, everyone’s emergency savings goals will look different. Create an updated monthly budget to understand your current expenses. If your living expenses are around $1,500 a month, start here. Once you’ve reached this goal, multiply this number by 3 to create an even more robust savings plan.
- Choose a savings account.
Next, select an account you can use for your emergency cash fund. This should be different from your current savings account. Because it’s a separate account, you’ll be less likely to dip into these funds for non-emergency expenses.
However, because you might need to access this account with short notice, avoid anything too difficult to access. Term deposit accounts, for example, are a great way to secure your funds, but they don’t make good emergency accounts. Consider a high-interest savings account that’s easy to access, like an online bank or a local bank you trust.
- Put money aside monthly.
Lastly, set a goal to put money aside each month. You can do this automatically by having a specific amount withdrawn from each paycheque for your emergency savings. Keep a close eye on your savings fund growth. The larger this gets, the more relief you’ll feel knowing you’re protected.
Protect Yourself and Your Money
Not sure where to begin when it comes to an emergency fund? You don’t have to manage these next steps alone. The team at Debt Busters are here to help. Once you’ve reached your initial savings goal, you might choose to ease your savings and invest your money in other ways. A financial expert can determine the right path for your goals.
Contact a member of our team today on 1300 368 322 for a free consultation. Your future is never guaranteed, but taking action today makes all the difference.