How much do you need saved up in your emergency fund? Here's the tea.
Picture this: your car has broken down and the mechanic has quoted you a whopping $1,000 to fix the issue, but payday isn’t for another fortnight...
Palms sweaty, knees weak, arms heavy. The stress is setting in.
This is the exact kind of situation an emergency fund is intended for.
An emergency fund is a separate savings account (away from all your day-to-day accounts).
It’s where you save money to use in case of emergencies (eg. car trouble or an unexpected medical bill). It means you don’t need to borrow money from family or friends to get by.
And you don’t need to take out a credit card or payday loan (don’t even get us started!).
Most experts reckon a good goal is to have enough emergency funds to cover three months’ worth of necessary expenses.
So the first thing to do is calculate your monthly costs for necessary expenses. Think: rent, bills, transport, groceries and other debt repayments.
For the average, single Australian with a basic lifestyle, this is estimated to be ~$2,300 per month. To achieve a secure emergency fund of 3 months, you’d aim to save $6,900.
This amount is designed to support you through tough times, and get you to the other side.
The idea is that you keep your emergency savings in a totally separate account - so you don’t get tempted to dip into it to buy Taylor Swift concert tickets (they’re exxy!)
How do I save towards my emergency fund?
There’s no right or wrong answer to this question. It takes baby steps to accumulate an emergency fund.
However, just keep in mind that your emergency fund won’t grow as quickly as your savings account - and that’s okay!
Try putting away a small portion of your pay-check, say $50 per week.
After 12 months, you’ll have over $2,500 in your emergency fund. You can set up an auto-transfer to make it easy peasy lemon squeezy for you.
Some weeks, you might be able to add a little extra in there. Others, not so much. As long as you’re consistently putting away some money into your emergency fund, you’re setting yourself up for success.
Emergencies are really stressful experiences, so the last thing you want to do is deal with money when you’ve already got so much else going on in your mind
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