What is an Emergency Fund?
(also known as a Rainy Day Fund)
What would you do if the sky fell tomorrow? I’m not talking about a little acorn here. I’m talking about a real-life emergency. I want you to take a moment to stop and think about this… If tomorrow you were to lose your job, or you became very sick and could no longer work, perhaps even if your much-needed car was to explode and break down…. How would you cope?
We all have things that we need to plan for in life, like buying a home, purchasing the groceries, and maybe even finally going on that dream holiday. But what happens when life throws you that proverbial curve ball? All too often, we don’t plan for those unforeseen expenses. Have you?
And I am talking about major auto repairs, unplanned travel, medical emergencies, and much more... What if I were to tell you that you didn’t have to go into debt when these unforeseen, yet inevitable events arise?
You need to plan ahead, and it all starts with a Spending Plan; a new and exciting way to look at budgeting.
A Spending Plan is a simple and easy way for you to take control of your financial future. With a Spending Plan, you can plan everything from your current financial commitments all the way through to your emergency fund. Follow these five tips to help you build your very own emergency fund that gives you peace of mind when life gives you curveballs.
1. Get Started & Set Your Emergency Fund Goal
This bit is simple, think about how much money you want to have in your fund, and consider when you may need it. Research suggests having enough money to cover at least three months of your general/day to day expenses is required as a bare minimum.
That may not be realistic for you right now - and that’s okay. Getting started is the most important step in building an emergency fund. So first and foremost, set the goal that is realistic to you and your (very own personal) circumstances, and get started.
2. Define Your Essential & Non-Essential Expenses
One of the first steps in a Spending Plan is working out exactly where all of your hard-earned money is going. If you are new to budgeting, think about all the financial commitments you NEED to pay for as they will take priority.
Think about all the bills you need to pay (rent, home loan, phone, internet, insurance, etc.), and really think about all the expenses you currently have. A lot of these expenses are essential, but the more you assess where your money is actually going every week (month, year, etc), the more you will begin to realize that a lot of these expenses are actually non-essential.
These non-essential expenses are typically things like eating out, drinking multiple cups of takeaway coffees a day, going to the cinema, purchasing “feel good” items (e.g. fabulous shoes in more than one colour) and a whole lot more.
You can keep track of all of your expenses (no matter what they are) with a Spending Plan. A Spending Plan is a sure-fire way to visualize and determine your essential and non-essential expenses.
3. Plan Out How You Will Achieve That Goal
Now that you know how much money you want to put aside for a rainy day, and you know what your expenses are, you can now begin to put in the work to achieving your goal.
When planning your emergency fund you need to consider your current saving goals and your income. Look at different ways you can cut back on your expenses. This is where you need to be merciless. You need to be transparent and unforgiving and start cutting back heavily on unnecessary spending habits. Refer to all of your expenses (both essential and non-essential) and again, look at all the places where you can shrink or better yet; completely eliminate any unnecessary spending to achieve your desired goal. Every little bit counts.
In fact, think about an expense right now that you potentially could live without or reduce. Perhaps you can think of other ways to save money. Changing providers can sometimes be a great way for you to save money.
4. Avoid Temptation
When saving for anything, there is always the temptation to spend what we have saved and we tend to fall back into old spending habits that no longer (or ever have), benefited us.
A good way to avoid temptation is to create a specific bank account for your emergency fund. By selecting a completely separate, high-interest savings account you will have the added benefit of accumulating interest (extra free money).
Another great way to reduce (or even eliminate) temptation is to opt–out from having this account linked to a debit card… Make it harder for yourself to access this money easily. Take it out of your sight!
5. Remind Yourself What You Are Saving For
Remind yourself that an emergency fund is just that – an emergency fund. Think of it only as a safety net, there to catch you when you fall. It is not a chunk of change for everyday expenses and it is not your next plane ticket to your dream vacation (that’s what your savings account is for).
DO NOT touch it until you need it, because when you need it… you will NEED it!
So there you have it! 5 Steps to creating your very own emergency fund... AND to keep you on track to build it fast consider a spending plan which we can help you with. In fact, we will create a personalised, detailed Spending Plan, just for you!
You won’t regret it! You can book in here for a no-obligation chat.
For more information, check out www.spendingmadeeasy.com.au The testimonials speak for themselves…