It is important to keep an emergency fund handy for when you find yourself in a financial emergency. This fund can be accessed in the event you have unexpected items to pay for, such as a hospital bill, or a car breakdown. This fund would also be accessed in the event you unexpectedly lost your job. It pays (literally) to be prepared!
What is an emergency fund?
An emergency fund is a lump sum of cash that can be accessed in the event of a financial emergency, such as an unexpected expense or a sudden job loss.
How much should be in my emergency fund?
A rule of thumb is to save enough money to cover three to six months of living expenses in the event that you lose your job unexpectedly. This is, however, a large sum of money, so don't be disheartened if this seems unattainable. Even having a few hundred dollars in your emergency fund can be immensely helpful if you do need it. We recommend setting up an automatic transfer into your emergency fund each week or fortnight with whatever amount you can afford - even if it's just $10 a week.
Where do I keep my emergency fund?
It is important to keep your emergency fund separate to your everyday accounts. You do, however, want it to be easy to access in the event that your need it quickly. A good account to use is a high-interest savings account. Using this type of account will mean that your fund will accrue interest as you save, but will also be easy for you to access. Look into one of these account with your bank.
How can I build my emergency fund?
When starting your emergency fund, it does help to get as much money into it as possible. A few ways your could do this include
- Finding a side job. This could just be temporary, and something you do to get a starting sum into your emergency fund, or you might like to continue it to build up your savings consistently.
- Cut out excess expenses. Instead of buying a coffee each day, you could put those few dollars into your emergency fund, and make coffee at home.
- Add your emergency fund into your budget. This will mean you will dedicate money to the fund each month, taking any guesswork out of the equation.
- Collect change. If you have spare change after making purchases, keep it in a jar at home, and deposit this money into the bank every few months. You will be surprised how quickly this money adds up, and you won't even miss it!