It’s easy to dismiss an emergency fund, for a number of reasons. One is that, in the real world of tight finances, having a serious chunk of money sitting in a savings account, gathering very little interest, can seem like an illogical decision. Secondly, you might consider your savings as ‘including’ your emergency fund, meaning it goes up and down according to life’s little dramas and isn’t set aside for an actual emergency. Thirdly, it’s easy to believe that it won’t happen to me.
It might be easy, but it’s very rarely true. The last couple of weeks have shown me, once again, the importance of an emergency fund, in ways that I hadn’t previously considered. Your emergency fund can become the biggest buffer to financial distress, especially if combated with a reduced level of debt. Here are some of the most important points of your emergency fund.
The thing about an emergency- we rarely see them coming. And they are different for each person. I got sick, and couldn’t do my normal shifts for a couple of weeks. Not an unusual emergency, some wouldn’t even classify it as one. But, with superannuation contributions, health insurance, phone bills etc to pay and no benefits because I’m a casual, without my emergency fund, I could only have relied on a credit card.
Another scenario. Another casual worker, with a son that has gotten sick. Both parents work, but the son is off school for weeks. After taking as much time as possible, the worker has to return to work, financially worse off and unable to take the time they need to look after their child. An emergency fund in this scenario would be a lifesaver, allowing you to take the time off that you need without having to worry about your finances.
Emergencies, without a doubt, mean different things to different people. For some people, such as those with sick leave benefits, neither of the above scenarios would rate as an emergency. But, whatever as emergency would be, ensure that you are prepared for it, so you can provide the proper support for the situation, without having to additionally stress your finances.
Strategies To Save
Lots of people have different strategies to save for an emergency fund, as 3- 6 months worth of wages is certainly not easy to come by. Start by setting up an automatic deduction. Then look at one expense you can save throughout the week, and put that towards your emergency fund. Use the tax refund you’ll be getting in the next couple of weeks towards your emergency fund, and next year’s bonus. Quit one thing throughout the week- the second cup of coffee, the extra drinks on Thursday night with work colleagues- and put the savings towards your emergency fund.
Or there are other, more unusual ways to save. A friend of mine never spends gold coins, they all go into savings at the end of the month, which is surprisingly effective. Or you could decide to never spend $5, and save them at the end of every month. Or revisit a monthly bill- say, an electricity bill or the grocery total- and work out what savings you can make, and put the money saved into your emergency account. The important thing is to have a base contribution in the automatic deductions, and then to add whatever extra you can throughout the month.