When the unexpected isn't a nice surprise
Life’s full of the unexpected. That can be fun – an unexpected gift, a surprise birthday party, finding $10 in the pocket of your jeans.
But the unexpected isn't always a nice surprise. In fact, it can get pretty tough. People lose their jobs, cars break down, family members fall ill…
So, when stuff happens, you can’t help being on the back foot for a while. But you don’t want to let that push you into debt that you’ll be paying back for months or years down the track. If you’re having a run of bad luck, having access to an emergency fund means you won’t sink and you’ll be able to move on sooner rather than later.
When you save into an emergency fund, you can more easily deal with the bad stuff. Of course, just having savings won’t solve the problems you’re facing, but having money to call on when you need it means you don’t panic about the financial side. It means you can focus on doing what needs to be done.
Emergency savings might not cover all of life’s ups and downs but, if something happens, that money can help you get up from the downs.
How much is enough?
If you lost your job tomorrow, could you still cover all your expenses until you got another job?
How much would you need to cover your living costs for 3 to 6 months, if something unexpected happened?
Start by working out your monthly costs for critical expenses, such as:
- Rent or mortgage payment
- Utilities (phone, power, water, rates)
- Vehicle costs
- Debts (credit cards, loans, hire purchases)
Then, once you have that figure, work out how much you can put aside each payday to start your emergency fund. The key thing to remember is consistency. Small and regular contributions will add up to a larger amount over time. Putting aside just $25 per week adds up to $1,300 over a year. Make it $75 a week and you’d have a much larger amount saved - $3,900.
It might take some time to get your emergency fund up to an amount that you’re comfortable with, but the sooner you start, the easier it will be to reach that goal.
Taking back control
Knowing that you have some savings to back you up, you have peace of mind and less stress because you know you can cover your basic needs and then some. You have a bit extra to help you get through whatever life chucks at you. You feel as if you have some control over your life.
Having some savings especially for emergencies helps you cope with the unexpected. Having a solid savings habit means you can reach your goals and you don’t feel like a slave to money, whether it's bills or debts.
You can enjoy life – whatever it brings.