There are plenty of events in our daily lives that side swipe our ability to save. Just when things look like they are on track, a curve ball lays claim to our cash. Unexpected expenses are always a pain in the proverbial but when we don’t have the cash to cope with them – well that’s just gnarly.
Maybe you have managed to dodge the bullet, and so far life is good but Imagine for moment how your life would change if the boss called you in and announced that you are going to be retrenched. Or what would happen if you were physically unable to work for three or four months and could not collect a salary?
Most people have to either raid their savings plans or go into debt to cover a financial emergency. The only way to avoid the pain of an unexpected expense is to have an emergency fund. Many people work hard on other aspects of their financial futures- like saving for retirement and digging themselves out of debt, but they neglect this critical aspect of financial planning.
No matter what your age or financial situation, part of your savings plan should be in a short-term cash account like a money market account, call account or a simple savings account, you could also pay some extra cash into your home loan (if you have an access bond). Otherwise, you run the risk of being forced to cash in longer-term investments to fund a calamity. This is never a good idea because the chances of paying the money back into savings when you are on your feet, are slim. In addition if you have investments that are market related you could be forced to withdraw the money when the market is weak, therefor eroding the value of your money.
So how much do you need to stash? The best case scenario would be to have six months of expenses saved up. However three months is acceptable. By three months expenses we mean three times your salary cheque after tax and deductions.
How do you get it? You will need to go on a spending diet for a while and any extra cash or windfalls you get, needs to be funnelled into your emergency vehicle. It may take a while but the effort is well worth the sacrifice of a few dinners and weekends away. Do a scan of your home, I bet you have a ton of stuff you could OLX or Gum tree to kick start the plan. You will be surprised at what people will buy-the saying “One man’s junk is another man’s treasure” is definitely true. The peace of mind having extra cash in the bank mind is awesome. Financial stress is a real party pooper, you can kick it out of your life forever with this simple and effective element of a financial plan.
(short-term savings products)