From time to time we all have surprise expenses that come up, but the financial pressure can pile on when you’re hit with an especially large, unexpected cost & it can quickly blow out your budget.
For when these surprises come along, an emergency fund can help cover you and your family. We’ve looked at a few reasons why this safety net is important and some steps you can follow to get one set up.
What’s the purpose of an emergency fund?
Unfortunately, this fund isn’t for fun spending such as a holiday or shopping spree. An emergency fund is designed for expenses that aren’t anticipated that you may need to cover in a short time period such as:
- Medical or dental bills
- Urgent home repairs
- Car repair costs
- A loss of income for a period of time
- Emergency travel
If you don’t have an emergency fund, you might have to tap into your savings, take out a loan or extend a loan to cover the unexpected costs which can be stressful.
How to build an emergency fund
1. Set up a new account
An emergency fund is usually a dedicated bank account. That way, you can see how much is in it and don’t have the temptation of taking money out for reasons other than urgent costs. Speak to your customer-owned bank about establishing a new account. You may even reap the benefits of a bit of extra interest if you save regularly.
Usually an emergency fund will be a dedicated bank account. By having it that way, you can easily see how much you have in it as well as removing some of the temptation to take money out of it for reasons that aren’t urgent costs.
You can speak to your local branch or contact us to discuss your options when establishing a new account, you may even be able to benefit from some extra interest if you save regularly depending on the account you go with!
Check out our popular savings accounts or our popular everyday accounts.
2. Establish a target
Although it’s hard to know exactly how much you may need in the future for life’s unexpected events, having a ballpark figure in mind can help you with your saving.
The Australian Securities and Investments Commission’s MoneySmart suggests putting aside three months’ worth of living expenses. The site has a budget planner you can use to see what this may look like for your household.
3. Think about regular payments
Work out how often you will make payments into the emergency fund. If you’re starting from scratch think about putting money into the emergency fund weekly, fortnightly or monthly. This could depend on the frequency of your pay.
You may opt to have automatic deductions from your main account to your separate bank account set up for your emergency fund, this way you don’t have to think about it.
4. Consider adding any windfalls to your emergency fund
If you get a pay rise, inherit some money or receive a tax refund, consider directing some or all of it into your emergency fund. Adding a larger payment can help build the fund up quickly.
Adding a larger payment to your emergency fund is a good way to help build the fund up quicker. If you happen to get an inheritance, a good tax refund or a pay rise for instance, you may consider directing some or all of those funds to your emergency fund.
5. Set up some rules for tapping into the fund
Having some ground rules around when or how you can use the funds in your emergency fund is important so that you don’t tap into it too often. Keeping the emergency fund at the right level is key. For example, things such as smaller car repairs or dental bills you may just want to use money from your other accounts rather than the savings in your emergency fund so it isn’t being used too often, saving the funds in there for more major incidents.
Building an emergency fund will provide you with peace of mind that you’ll maintain financial stability should unexpected expenses come up. By setting up your dedicated account, establishing your savings targets, making regular payments and setting yourself clear ground rules for its use, you can create a great financial safety net that will protect you and your family from unanticipated expenses.
Don't let surprise costs derail your financial plans. Start taking steps today to build your emergency fund and secure your future. Speak to your local Horizon Bank branch team for more information on setting up a dedicated account or you can get in contact with us online. Remember, the key to financial resilience is preparation, and an emergency fund is your first line of defence.
Ready to take control of your finances? Begin building your emergency fund now and enjoy the confidence that comes with being prepared for life's unanticipated events.
Horizon Bank has a branch network spanning the NSW South Coast and Illawarra. Horizon Bank branch locations: Albion Park, Bega, Bermagui, Berry, Merimbula, Moruya, Nowra, Thirroul, Ulladulla & Wollongong.
