Sudden medical crises, unanticipated car or home repairs, or the loss of crucial income like employment, parental leave, or extended sick leave, can quickly derail your family budget. Safeguarding against these challenges means you won’t need to dip into regular savings or incur debt.
As much as we might plan ahead, the unexpected happens, and sometimes it’s expensive. In this article we’ll cover how to build an emergency fund to weather any storm.
What is an emergency fund?
An emergency fund is money held in an account to cover essential expenses, such as housing costs, utilities, groceries, and medical bills, during times of crisis. It serves as a cushion against hefty, unexpected bills. Ideally, an emergency fund will be kept in an easily accessible savings account.
How much do you need?
The amount of your emergency fund should match the situation of your family and your finances. Having enough money to cover at least three months living expenses may be a good base to start with.
To figure out what you need, go through your weekly or monthly expenses as a family and multiply by the number of weeks or months you want as a safety net. This budget planning calculator may help you map out your income and expenses. You may consider speaking with a financial adviser or contact our Wealth Concierge team to talk through your plans.
How do you set it up?
Once you have an emergency fund goal, find a secure, high interest, easily accessible savings account. It’s important to use a separate account, so there’s no temptation to dip into it for non-emergency expenses.
You’ll most likely be starting small, so find an account without a minimum opening amount and good interest rate. Avoid term deposits or savings accounts with restrictions on withdrawals – the idea is that you can access the money instantly if you need to. Our EasySaver savings account is a good choice – it will earn you 3.75% p.a. interest with no restrictions on deposits or withdrawals, no monthly fees, and you only need $1 to open it.
If you have a home loan, you may be able to open an offset account, which is an account used to reduce (or offset) the amount of interest you pay on your home loan. You can use an offset account like a transaction account, so you will have quick access to money should you need it. You can read more about our savings account options here.
How do you keep it going strong?
Set up a regular automated deposit into your emergency fund – make it an intrinsic part of your budget, not an add on. Your workplace payroll may be able to pay a small percentage of your wage into the account, so you don’t need to think about it. Set a goal that you know you can meet. Even just $20 a week will add up to more than $1,000 over a year.
Relax, and enjoy life!
Building an emergency fund is about setting up strong financial foundations for your family, giving you all peace of mind so you can focus on the important things and enjoy life together.