Let’s talk about saving! How to save money for an emergency fund (you hope to never use)

Anyone who knows me would know that I am a bit of a crazy person when it comes to saving, budgeting and planning. I love it, I could spend hours each week in spreadsheets planning out spending and budgets until the cows came home (it’s a little sad really). So today I wanted to talk about budgets, and in particular having some emergency money up your sleeve if anything unexpected was to happen to your job, in your home life or while you are travelling.

If you lost your job tomorrow, how would you cope financially? Would you have enough money in your bank account to cover the rent or mortgage, buy groceries and pay bills until you found a new job? If you were travelling overseas and needed to come home for an emergency, would you have enough money in an emergency fund to get you there and back?

Life can throw some pretty big curve balls at us, and it pays to be prepared for them. From unexpected bills like a blown gasket in your car (yes I had to look that up to see what it was called), to an emergency trip interstate or overseas to visit an ill loved one, costly hiccups can often throw your finances into the red.

To avoid going broke all of a sudden – simply because an unexpected, expensive event threw your finances off track – you should seriously consider a rainy day fund, or as it’s commonly called an emergency fund.

How much should I put in an emergency fund?

As a general rule, an emergency savings account should have up to three months’ worth of expenses in it. This way, if you lost your job suddenly – or had to take time off work to care for a family member – you’d have plenty of time and money up your sleeve.

But how do you work out what that figure should be? One word (and one of my most favourite words!): budget.

There are loads of easy budgeting tools available online. All it takes is a little patience and perseverance to enter all the different expenses that you are paying on a daily, weekly and monthly basis. The most common items that go into a budget include:

  • Daily living expenses like groceries
  • Rent or mortgage repayments
  • Transport costs such as petrol and public transport
  • Monthly bills such as phone, internet, gas, power
  • Clothing
  • Annual bills such as insurances, car registration and rates
  • Medical bills

Once you have worked out how much you roughly spend every year on these items, you can then quarter it to get an idea of how much you might need over three months. Of course, there is no perfect formula as some months have more bills coming in than others … but at least it’s a start. You can use MoneySmart’s easy budget tool over here to get you started.

How do I get started with saving?

Doing up a budget and seeing how much money you spend each year can be overwhelming (it was for me at first!).

According to MoneySmart, the average household was estimated to spend $69,166 on general living costs in 20121. Divide this figure by four, and you’d need to save about $17,500 in your emergency fund. That’s a lot of money.

Don’t be daunted by the amount you should theoretically have in your emergeny fund. Start small – even having $1,000 set aside will make a big difference if you suddenly find yourself racing to the vet with a sick pooch.

To start saving, you can follow these easy tips:

1. Open a dedicated savings account and call it ‘rainy day fund’ or ‘emergency fund’ – mine is actually called ‘don’t touch me Shannon!’. Look for a no-fee savings account, and clearly separate it from your everyday spending account (this is key!). This way, you won’t be tempted to dip into it when you want to buy a beautiful new pair of shoes.

2. Work out how much you can realistically put into your emergency fund each month. If you’re on a regular salary, do you have a little left over when you’ve paid your general living expenses? If so, slice a portion of the leftovers and send it straight into your emergency fund. Direct deposits work really well here.

3. Be realistic about your savings plan. If you already live on a lean budget, you’re not going to reach your target in one year. But that doesn’t mean you shouldn’t start saving even just a little bit.

4. Find ways to cut back. Once you’ve done a budget, you may find ways to save. For example, do you really need both Netflix and Stan? Do you really need to eat out three times a week? Probably not. See other simple ways to save over her. 

And finally, don’t give up! You got this!

As Peter Gabriel and Kate Bush once famously sang, “Don’t give up.” Saving for something like an emergency fund – which is essentially a fund that you hope you’ll never have to use – can be hard. But, guaranteed, you’ll thank yourself for that extra pile of cash if something came up unexpected or that massive vet bill comes through.

Here’s the song if you need some inspiration (how hilarious is the film clip?!)

Sources:

https://www.commbank.com.au/personal/can/budgeting-and-planning/saving-for-a-rainy-day.html
https://www.moneysmart.gov.au/managing-your-money/budgeting/simple-ways-to-save-money



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