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Wealth - 6 min read

If you’ve listened to financial podcasts or read personal money management books, you’ve most likely heard about emergency savings. The idea is simple: you stash away money for unexpected expenses, and you don’t touch it unless you absolutely must.

 

But it’s a hard sell. Saving cash from your hard-earned income is much less fun than, say, going on holiday. And when you hear experts advising you to amass three to six months’ worth of living expenses, you might throw up your hands.

 

Before you give up, consider the following six reasons to have an emergency savings. And then check out our suggestions for starting your own emergency fund. It’s easier than you might think. And over time, you’ll create a cushion that will allow you to stay on track with your long-term goals and enjoy unshakeable peace of mind.

 

1 - Job Loss

Whether you resign for personal reasons or get laid off when your company goes through restructuring, losing your job is stressful and emotional. If you don’t have emergency savings to see you through until you find a new job, the situation can be particularly difficult.

 

With several months of expenses saved up, you can make it through a job loss without going into debt or relying on the assistance of loved ones. Think of your emergency fund as insurance: it allows you to pay your bills until you establish a new source of income.

 

2 - Sudden Removal

Unfortunately, most people face the experience of having to find a new job suddenly at some point in their lives. What if your new position is located in Brisbane, and you need to arrive by Monday?

 

While you’ll probably get there in time, the removal will cost money. Do you have the money saved up? Your emergency fund can rescue you and help you to start your new job on the right foot.

 

3 - Illness or Accident

Nothing changes your life overnight like a sudden illness or accident. Even if your immediate health care expenses are covered, you may incur all kinds of unanticipated costs such as help with housework, rides to appointments and special foods or therapies.

 

And if you have to give up some or all of your income while you recover, you’ll feel incredibly grateful for your emergency savings.

 

4 - Family Emergencies

Death rarely comes when we expect it, and if you need to travel to a funeral, your emergency fund can get you there. When dealing with the emotional trauma of losing a loved one, the last thing you want to worry about is whether or not you can afford the flight home.

 

If you have to pay for travel expenses, burial services or other bereavement-related costs, your emergency savings can keep the damage off your credit card.

 

5 - Home Repairs

Doesn’t it always seem that the air conditioning breaks down when it’s 39 degrees outside? Leaky roofs, plumbing back-ups and broken appliances can throw an entire month’s budget off-kilter if you let them.

 

Let your emergency savings handle the unexpected load. If you own a home, it’s especially important that you save money for the inevitable rainy days.

 

6 - Car Repairs

We rely on cars for so much: getting to work, shopping, spending time with friends and family. And experience has taught most of us that car repairs are inevitable--and expensive. Instead of paying for your next car repair with a credit card, pay with cash. You can do this when you have a rainy day fund ready at all times.

 

If you want to take your car repair readiness one step further, set up a monthly budget line item that sets aside money specifically for future vehicle problems. If you don’t spend the money one month, that’s great! Add it to the amount set aside for next month. Your budget line item will grow until you have to spend it. In this way, you can preserve your emergency fund.

 

How to Get Started

As you can see, reasons abound for having an emergency savings. But how can you get started? And how can you afford to “pay yourself” when it seems you barely have enough money to pay everyone else?

 

We’ve put together some tips to help you start your emergency savings today:

 
  • Create a goal for your emergency fund
  • Set up an automatic transfer from your savings account each month
  • Reduce discretionary spending until you reach your savings goal
  • Replenish your emergency savings as soon as possible after you borrow from it
  • Reevaluate your fund amount as your life circumstances change (birth of a child, the purchase of a home, etc.)
 

Discuss your emergency savings plan with your financial adviser for more personalised suggestions. To set up a consultation with one of our wealth advisers, get in touch with us at Altus.

 

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