June 4th, 2018
How many times have you tried to get your finances under control when an unexpected emergency has hit you?
How many times have you suddenly needed a few hundred dollars for something and it wasn’t available to use?
You need an emergency fund.
What is an emergency fund?
It is an amount of money to use in case of emergency situations. An emergency fund being available to you will rescue you from an unplanned situation. By having your stash at the ready, it will save not only your sanity as it will give you peace of mind but it will also save you money. This savings buffer means you won’t need to use your credit card or borrow any money if a crisis was to happen, saving you interest you would have incurred if borrowing.
Saving an emergency fund or stash should be a top priority before you even try to tighten the reins and start a budget. If you can get an emergency stash together before, or while getting your budget up and running, you’ll find sticking to your plans much easier. Therefore having more chance of success and following it.
From time to time, we all have some sudden and unexpected expenses. This is usually the first thing to ruin a budget. You might need emergency dental work done or your washing machine may break down. Having kids and animals in the house will also increase the risk of emergency situations. More people = More risk. You’ll need this emergency fund as assurance, or personal insurance, for when things might go wrong. It’s for your own piece of mind and very worth it.
What is an emergency?
This is an urgent, unexpected expense that arises out of your regular planning. An unexpected cost that stops you from getting your basic needs met like health, housing, food and earning an income to provide for these needs.
I wouldn’t call a TV replacement an emergency as most of us have another TV in the house we can use until we can save and purchase another. Emergencies could include an urgent Vet or dental visit, white goods and car repairs, unplanned medical costs or a household maintenance issue.
Try to save and put away at least $1000 to set aside solely for an emergency situation. Save more if you can but $1000 seems to be a safe amount to have available so as to not interrupt your budget. This amount will cover basic whitegoods, appliance, a repair or service needed, even a mortgage repayment if a short illness was to hit.
If you happen to need to use any of your stash or emergency fund, make sure you replace it as quick as you can. If possible throw in a little more to always be 1 step ahead and ready for any more sudden expenses not in your household budget.
Where can I get the money from to use for an emergency stash?
If you don’t already have access to $1000 for an emergency fund, check around your house for items you don’t need. Can you find any items no longer used to sell? Better still, can you have a clean out and hold a garage sale? These can bring in a few hundred dollars over just a couple of days.
The best way to get an instant emergency fund is to use your tax refund/return at the beginning of the new tax year. You won’t need to spend weeks or months saving this while trying to get your new budget started. You will need all of your income for expenses, debt and other savings so having an instant emergency fund set aside will allow you to concentrate on your budget to create an instant back up solution in your household.
Where should the emergency stash be kept?
You might want to keep this fund separate from all of your other money. If you don’t want to have this lying around in cash for safety reasons, from yourself and others, a good idea would be to have this in another bank account completely separate from all other accounts. I would even choose a different bank all together so there’s no confusion. Do get an EFTPOS card with the account though, to access the money quickly if the urgency arises. Keep this card hidden in your house or other part of wallet so it’s out of bounds of regular spending.
This fund will be super handy so as to not interrupt your household budget. It could be the one thing that keeps you succeeding with your domestic economy and regular planned expenses.