It’s MoneySmart Week, and here at Mozo, we know there’s nothing smarter than always being prepared. Life can be pretty unpredictable. Unexpected medical bills, uninsured damage to your property, or sudden unemployment can happen to anyone at any time and have a massive impact upon your quality of life. But although you might not be able to stop the unexpected, you can definitely minimise the stress a crazy crisis can cause – set yourself up an emergency savings fund today and be prepared for anything.
Follow our easy four-step plan:
1. Work out how much you need.
According to the ABS, the average Australian adult’s monthly salary is $5,558, which means that a very basic (4 week) emergency fund should be between $6,000 and $10,000. When you’re figuring out how much you might need consider:
Pets. A one-off emergency operation for your furry friend could cost in excess of $1000. Factor Fido into your emergency fund.
Ambulance fees. If you don’t have private health insurance, an ambulance call-out will set you back around $600.
Home and contents insurance. Figure out how comprehensive your home insurance is. It’s estimated that over 80% of Australian households are underinsured – if your home is one of these, add more to your emergency fund.
And if you’re less into ballpark figures and more into detail, use our budget calculator to sort out the nitty gritty of your emergency fund requirements.
2. Find a safe place to stash your emergency money.
Although a term deposit might lock your money away from your spend-happy reach, it won’t be easy to access in a hurry. Consider a high interest savings account instead. Look for an account that has:
A high ongoing interest rate
Complete flexibility on deposits and withdrawals
Rewards for making regular deposits
Some of our top picks include:
If you have a home loan with a mortgage offset account facility, you might also like to consider stashing your emergency funds in an offset account. This will reduce the interest you’re paying on your home loan and give you easy access to your cash if you need it in a hurry.
3. Set up automatic savings transfers
The key to growing a healthy emergency fund is depositing a little in it regularly. Automate payments into your emergency account by setting up a direct debit for each payday.
Use our savings calculator to see how long it will take you to reach your savings goal.
4. Maintain your fund
If you ever have to access your emergency fund, make sure to top it up again as soon as possible. Also try to get in the habit of shopping around each year to compare your savings account against other products on the market. If your provider isn’t offering a top notch rate, don’t hesitate to take your business elsewhere.
Have you ever ever had to use an emergency fund? Comment below with your tips and stories.