Could you cope if you needed instant access to money during an emergency? Learn simple ways to create savings for times when life throws you a curve ball.
Many expenses and changes in life can be planned, like buying a house, going on holiday, picking up groceries or having a baby. But there can be plenty of unforeseen changes as well, including job losses, shock bills, broken-down cars and illness. The good news is that you don’t have to get into debt if unplanned situations arise.
Follow these simple actions to create an emergency fund for that rainy day, and take another step towards financial peace of mind.
Assess your total income
Before calculating how much you can afford to put into your emergency fund, you’ll need to evaluate just how much money you have now, plus what’s coming in. This might be straightforward if you have a regular pay cheque, but if your income is sporadic or ad-hoc, it might need a bit more working out. Don’t forget to include any expected income from shares or interest from existing savings accounts. And, while you’re thinking about making money, consider other immediate revenue streams – like selling unwanted stuff you have lying around the house.
Work out what you spend
Just where does your money go every month? Think about all the bills you pay (rent or home loan, mobile phone, internet, utilities, insurance etc), any memberships you have, transport costs , how much you spend on groceries and personal care. Many of these expenses are essential, but you may have some non-essential expenses as well: eating out, entertainment, buying unnecessary clothes, having three takeaway coffees a day… You can keep track of your expenses using tools like the AMP Budget Planner Calculator, it makes this process much easier and helps you re-evaluate your savings goals down the track.
Set a goal for your emergency fund
How much money do you want to have in your emergency fund, and how soon do you want it? Figures quoted by experts can vary widely, with some suggesting you should have enough to cover three to six months of your expenses, whereas others recommend at least a year of your income. What all agree on is getting started – having something in your emergency fund, even a few hundred dollars, is better than nothing. So, set a goal that’s achievable and realistic, and not so daunting that it’ll prevent you from even getting started.
Plan how you’ll do it
Once you know how much you want to save, you need to work out how to get there. Saving for your emergency fund should take into account your income and savings goals, and then look at all the ways you can cut back on your expenses. This is where you need to be ruthless, slashing unnecessary spending , ie your wants, as opposed to your needs.
Let’s say you want to save $2,000 in six months: that’s about $330 a month, or around $11 a day. Go through your spreadsheet of expenses and look at all the areas that can be tightened or eliminated completely to make this goal achievable. You’ll find most are the non-essential expenses listed above, but you can also save money by talking to suppliers, like your electricity, water and gas suppliers and mobile phone provider to negotiate better plans.
Your emergency fund is just that – a safety net. It’s not a chunk of money for planned everyday expenses or a holiday you want to take (that’s what your savings account is for), so you shouldn’t touch it until you need it.
To help avoid temptation of dipping into it, you could create a specific account for your emergency fund. Choosing an account with high interest can mean you’ll be financially rewarded for contributing to it. And opt-out of having a linked debit card, to remove easy access temptations. Set up an automatic transfer of cash from your primary account on a set day every month (like the day you get paid) and then just forget about it. This way, you don’t even have to think about your emergency fund, but it will be accessible when you truly need it.
Learn about Early release of super and managing your cashflow
Understand more about the Early release of super, the JobKeeper payment and what to do if your cash is running out in this free webinar.
Saving for your child’s future06 January 2021 Having kids can be costly. Learn what expenses you might need to cover, and how saving now could help you give them the best start in life. Read more
Boost savings with compound interest12 February 2021 If you’re interested in using compound interest to help your savings grow, then the sooner you start, the better. Over time, compound interest will make much more money than simple interest. Read more
Find your perfect savings account11 February 2021 | Manage my money Here’s a five-point checklist to ensure your savings account is the one for you. Read more
The product issuer and credit provider is AMP Bank Limited ABN 15 081 596 009, AFSL and Australian credit licence 234517.
It’s important to consider your circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account. Information including interest rates is subject to change without notice.
Any application is subject to AMP Bank’s approval. Terms and conditions apply and are available at amp.com.au/bankterms or 13 30 30. Fees and charges may be payable.
This information is provided by AMP Bank Limited. Read our Financial Services Guide available at amp.com.au/fsg for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice.
AMP Bank is a member of the Australian Banking Association (ABA) and is committed to the standards in the Banking Code of Practice.