We get it. Sometimes it’s difficult to talk, or even think, about that word: Money.
However, the more we do, the better we start to feel once a sturdy plan has been put into place. We’re here to help with that and this blog post is all about creating a financial plan to tackle those feelings of worry or guilt.
Let’s start by answering a simple question around saving money.
Why do you need an emergency fund?
An emergency fund is essential for families and individuals to have as a failsafe in times of both positive and negative economies. A need for cash can arise at any time of severity, such as:
● Sudden job loss
● Medical emergencies that cause income loss
● Unforeseen housing or vehicle expenses
● Rising tax or energy prices
Not to overwhelm you, but sometimes these things happen, and we can’t control them. However, if we plan ahead then we can usually mitigate the impact of such events. It’s great to get some savings in the bank and a healthy way of looking at a monthly income could be to place a portion of it away from your account automatically. That way, it’s as if it was never there in the first place — but really, it’s just waiting for you in reserve.
How much should you save?
The answer to this question depends on a number of factors, but our advisors recommend anywhere between 3–6 months of your regular outgoings or expenses as a great start. This figure should give you piece of mind when thinking of how to provide for your family during a difficult time. Also, in job loss circumstances, it should give you enough time to get back on your feet and find a new position.
Of course, we must stress that this number is personal to each person’s situation and income levels. Some people have large families to care for whilst others have high monthly outgoings. Though, something we always tell our clients is something is better than nothing, so whatever budget you have available for savings should be considered for an emergency fund.
How to build an emergency fund
Now this one we can answer with precision. you may have considered placing your money into something like an investment fund. However, this is not always the best thing to do, investing your emergency fund means that you might not be able to access your money right away and considering that investments can go up and down, you can end up with less than you first put in when you need it the most.
So, you should place your emergency fund in a secure and easily accessible location. Placing your money into a savings account, like our savings portfolio, creates exactly the right environment for this. Setting up automatic contributions takes the money out of your account when you get it so you won’t know it’s gone and you’re less likely to spend your savings.
When should you use your emergency fund?
This is a personal decision and sometimes it’s helpful to define what an emergency looks like. Is it losing your job? How about a leaking roof or maybe having unexpected car repairs? If you have a list of possible emergencies that could apply to you, it could be easier to decide when you use that fund.
Money is intrinsically linked to stress levels. When an emergency situation occurs, we get anxious about our finances, which can have an impact on our working or social lives.
Think back to the last time you got that kick-in-the-teeth bill or phone call with bad news. What was it for or about? You can rarely plan to have the right amount of money for such an occasion, but that’s why it’s so essential to build an emergency fund and grant yourself the peace of mind you deserve.
What’s next?
As mentioned, an emergency fund can have any amount in it, depending on your financial situation. However, once you’ve got a figure within a savings portfolio that you feel comfortable with, you can start to think of happier thoughts. Doesn’t that feel nice?
You may have other goals you’re planning for. Well go and get ’em tiger! Could be a retirement fund, your child’s education, or that dream trip abroad. Whatever it is, you can plan and manage your finances with Life Goals online.
If you have any questions about this topic or you’re curious about the right amount of savings to place in your emergency fund, please do not hesitate to contact us.