Do you have an emergency fund?
So here you are doing everything right tracking along nicely getting out of debt, then boom the unforeseen happens and your car has broken down, what the heck, this can’t be happening not now!!!
Trust me this is not the situation you want to find yourself in and as such it is highly recommended that while you are working hard to pay down your debts you also start to establish an emergency fund.
An emergency fund is a fund you use to save money for those unforeseen or urgent expenses, these could be things like your car breaking down, urgent medical bills basically any thing unexpected…..which dear friends is not a sale at Myer!
Having an emergency fund is a financial safety net so you don’t have to borrow money for the unexpected.
There is no set amount that you need for an emergency fund, but the general rule of thumb is about 3 months of living expenses.
Don’t think you need to go all in here and start saving huge amounts of money each pay, you don’t have to, start making small regular contributions over time this will add up.
For instance, if you were to save $20 per week, within a year you would have saved $1040, not a shabby starting amount if you ask me!
If you are new to an emergency fund, you could consider doing things few things to get started.
Open your savings account in a different financial instruction to the one you use daily this way you won’t be tempted to use this money for every day expenses.
Set up an automatic transfer for a certain amount each pay, perhaps ask your payroll department to pay this direct to your emergency fund. Set and forget.
You should keep adding to your emergency fund, regular deposits is the key, and if you should get any money that you didn’t expect such as a tax refund you can use this to boost your fund.
Long term its worth considering putting more aside, this would be a help if you are unable to work for a period of time, for example if you are unable to work due to caring for a family member.
You should use your budget/spending plan to work out what is an ideal amount to save after your expenses have been paid and you have reduced your debts completely.
As I mentioned previously a sale at Myer is not what your emergency fund is for, however, if you have some unexpected expenses and you do not have any other money available, that’s the time you would access your emergency fund.
If it is something that is not urgent you should save up and pay it from that saved money.
Remember to top up your emergency fund afterwards when ever you have to use money from it, this will keep the fund growing, if you just use the money without toping it back up your fund will reduce quickly and it may not be enough if you need to use it again.